China needs municipal bond rethink

In order for China’s nascent municipal bond market to flourish, authorities need to rethink their regulation philosophy.
Zhao Yingjie
Zhao Yingjie

National People’s Congress discussed on April 21 amending Chinese law to allow local provincial governments to issue bonds, potentially marking the beginnings of a national municipal bond market.

At the moment local governments can’t issue bonds in any form. In order to finance city construction, China devised two kinds of quasi-municipal bonds bonds issued by the Ministry of Finance on behalf of a local government and bonds sold by local government financing vehicles LGFV.

Only six local governments Shanghai, Zhejiang, Guangdong, Jiangsu, Shandong and Shenzhen are allowed to issue the former type of bond, so outstanding volume of these bonds is very low.

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