200 billion yuan (29.3 bln US dollars) worth of local government bonds, to be issued via the Ministry of Finance, have been allocated according to both funding needs and local governments' ability to repay debt, according to Chinese Finance Minister Xie Xuren.

Chinese Finance Minister Xie Xuren

Funding for key government projects

Xie said the bonds will be used to fund key central government projects and improve people's livelihoods.

As well as increasing public investment and boosting key projects, the bonds will help spur economic development and promote structural tax reductions.

The bonds issue is aimed at bridging the gap between fiscal income and government spending. China's 2009 fiscal income is expected to rise by 8 percent to 6.623 trillion yuan, while spending will reach 7.6235 trillion yuan, leaving a financing gap of over 1 trillion yuan.

Bond issues limited by ability to repay

According to Xie, the bond issue limits of local governments will be determined in accordance with instructions of the State Council.

Xie said, "We need to look at the level of local economic development, debt sustainability, and the local government's past debt situation."

According to China Business News, several local governments have already submitted applications to issue bonds. Shenzhen wants to raise 10 billion yuan, Zhejiang 30 billion, Xinjiang 5.5 billion and Jiangxi 10 billion yuan.

Bond terms will be set at 3 years.

Improving local government debt management

The issue of local government bonds is also aimed at improving local government debt management.

Xie said bond issues would help local governments set up comprehensive budget management systems.

The current budget law prohibits local governments from running fiscal deficits and issuing bonds, but some local governments have got around the law by issuing bonds via other institutions such as local construction companies. Most experts agree that local governments should be allowed to issue bonds in their own right.

According to Wang Heshan, finance director of the Ningxia Hui Autonomous Region, the Ministry of Finance has already released draft regulations covering the issue of the bonds.

(China.org.cn by Wang Wei & Ma Yujia, March 6, 2009)