It is meaningful progress that the central government has finally allowed its local counterparts to raise funds through a conventional standard practice of selling government bonds, says an article in Southern Metropolis Daily. Excerpts:

The State Council has approved 10 local governments that can issue their own government bonds from this year. The local governments are responsible for the repayment of their own bonds, the scale of which is set by the central government.

Local governments usually raise funds through their own city construction and investment companies and by selling land directly to real estate developers. Poor supervision makes such companies hotbeds for corruption. Moreover, investment-driven growth is the fastest way to help local officials be promoted to higher ranks. Many local officials try their best to raise funds for investment. The issue of local government debt has become a major concern for the Chinese economy.

Lawmakers should revise the current Budget Law, which rules that governments should not have deficits. The new budget law should have clear stipulations on local governments’ deficit and budget issues, and ensure that government debt be effectively supervised.

There should also be independent credit rating agencies for local governments to manage and control their risks.