China’s Ministry of Finance on Tuesday issued rules for local-government bonds this year, telling regional administrations to set “reasonable” issuance plans for 2017 and to control the pace of debt sales.
Local governments must be mindful of bond market conditions and macroeconomic trends to guard against risks in bond issuance, the Ministry of Finance said.
The government has tightened controls in recent years on new local-government debt to help ward off financial risks following a borrowing binge since the global financial crisis.
The bonds issued by each regional government this year cannot exceed a ceiling set by the Ministry of Finance, the rules said, with the amount issued in any one quarter not to exceed 30% of the total quota for the year.
Local governments must be vigilant in the use of proceeds from bond sales, with funds raised through a debt-swap program only allowed to be used to pay back the principle on previous debt, while mechanisms should also be in place to ensure interest is paid on time.
Authorities should also make efforts to improve secondary market liquidity and expand the base of investors in local-government bonds to non-financial firms and individuals, the ministry said.
China capped the rise in outstanding local-government debt at 17.2 trillion yuan (US$2.5 trillion) in 2016, up from 16 trillion in 2015, excluding bonds issued under a debt-swap scheme.
The ministry said in November that local-government debt was under control and the debt burden would not show a big change this year.
Local governments need to submit their annual bond issuing plans by March 31, with first quarter schedule due by February 28, the ministry said in its rules.