Yet traders have advised caution over the quality of upcoming issuance by other provinces under the pilot. "The top rating assigned to Guangdong doesn't mean others in the pilot will enjoy the same rating," said a Shanghai-based trader.

Guangdong helps kick off new era

Local governments 'need to refinance debt'

"Now the central government's implicit guarantee to repay has diminished, the rating will depend largely on local government's finances."

Repaying funds raised through municipal bonds will put local government budgets to the test. Without imposing proper fiscal discipline, it will be a challenge to put the issuer's fiscal strength in perspective, according to Lu Zhengwei, chief economist with Industrial Bank Co Ltd.

In the face of rising debt load, some local authorities in China have imposed limits on the amount of debt they can take since last year. East China's Anhui province said it cannot expand its debt outstanding if its current debt level exceeds the province's fiscal revenue and the amount of debt due accounts for 20 percent of its fiscal revenue in the following year.

Ma Jun, an economist with the People's Bank of China, the central bank, said local governments have to take concrete steps to get their own fiscal house in order.

Thus, having proper budgetary constraints will be a determining factor when reviewing a local government's eligibility to issue municipal bonds, he added.