Lawmakers have discussed a plan for local-government bonds, and analysts expect it to be finalized at March’s annual legislative session. The tentative plan envisions local governments selling around RMB200 billion or $29 billion, of bonds this year through the central government, according to economists in China.
The fundraising is intended to spread the burden of funding the government’s massive stimulus program beyond the treasury in Beijing.
The tentative plan discussed by lawmakers envisions local governments selling around 200 million RMB or US$29 billion, of bonds this year through the central government.
The central government is still the main driver: Already, it has spent RMB230 billion on the stimulus, with more on the way.
Proceeds from local bonds would go only to projects approved by Beijing, such as work on airports, power plants and railroads. But if the program continues to develop, it could supplant some of the other avenues local authorities have pursued to raise money, and give communities a bigger role in directing China’s public spending.
Su Ming, deputy director of the Research Institute for Fiscal Science, the finance ministry’s think tank, said, ;I think this should be a transitional arrangement. China should revise the law to allow local governments to issue bonds. Even if we don’t allow it, they find ways to raise the money without the central government knowing.’
The Wall Street Journal China’s tax system funnels most revenue to the central government, with provincial and muncipal authorities left to handle the bulk of spending on services such as education and health. While Beijing sends money to poorer provinces, most local governments still rely on extraordinary fundraising measures to make ends meet. Land sales have been a big source of money but have started to dry up as the property market declines.