China likely to start issuing local gov't bonds

By Kim Young-gyo HONG KONG, Sept. 19 (Yonhap) -- China may begin a pilot program to issue local government bonds, a state-run news outlet said Monday, amid rising concerns that regional governments are struggling to cope with massive debt. In June, the Chinese National Audit Office said that the country's regional government debt reached 10.7 trillion yuan (US$1.65 trillion), equivalent to 27 percent of the country's 2010 gross domestic product (GDP), estimated at 39.8 trillion yuan. According to Financial News, a newspaper supported by China's central bank, Beijing will allow the local governments in the country's developed coastal provinces of Zhejiang, Guangdong and Shandong to issue their own bonds. The report comes as China's Ministry of Finance signaled last month that it would support plans by local governments to issue such bonds, which could address concerns about the large amount of borrowing undertaken by local governments. Market watchers said such a program will enhance local administrations' discipline and transparency in managing their debt. It will also expand their sources of funding, which to date have come from bank loans and so-called "local government financing vehicles" (LGFVs). The Chinese National Audit Office raised alarm bells when it released the results of its first ever audit of local government debt. The total debt borne by local governments in China, meanwhile, was larger than the current 6 trillion yuan in outstanding bonds issued by China's central government. Out of the total, 62 percent of the debt had been used for infrastructure investment, while land purchases accounted for 11 percent, according the Chinese government's findings.