China allows 2 more local gov'ts to issue bonds

China will allow two more local governments, Jiangsu and Shandong provinces, to sell bonds directly in a pilot program.

The State Council, China's cabinet, has allowed six governments, Shanghai, Zhejiang, Guangdong, Shenzhen, Jiangsu and Shandong, to carry out the pilot program in 2013, the Ministry of Finance (MOF) said Thursday.

It first allowed four local governments to directly sell bonds to investors in the fourth quarter of 2011, including Shanghai, Guangdong, Zhejiang and Shenzhen. They issued a total of 22.9 billion yuan (3.71 billion U.S. dollars) in bonds in 2011 and 28.9 billion yuan in bonds in 2012.

Following the new regulations, the issuers can sell three-year, five-year and seven-year bonds, with each taking no more than 50 percent of their approved auction quotas.

About 80 percent of local government debt has been incurred through local government financing vehicles, which are mainly set up to fund construction projects and have come under fierce criticism for being poorly supervised and managed.

Analysts believe that giving local governments the right to sell bonds will help relieve their debt burdens and improve the transparency of their debts.