Local governments' municipal bonds should only be sold to local residents to offset default risks and help the debt management system to mature, People's Bank of China Governor Zhou Xiaochuan said.

A mechanism that mainly sells bonds to local residents can bind investors' interests with debt supervision, which can reduce potential defaults and improve the management of funds, he wrote in an article in the central bank-owned magazine China Finance.

Provincial and city governments issue bonds that are targeted at all investors around the nation at present, leaving room for local governments to manipulate prices and increasing the possibility of bad loans, he said.

In terms of international sovereign debt issues, Zhou suggested limiting local governments' debt issuance based on a supervision and management system.

If a debt-ridden government needs financing from the global market, it can apply for funding support from international organizations, such as the International Monetary Fund and the World Bank, Zhou added.