China will allow 10 local governments, including municipalities of Beijing, Shanghai, and provinces of Zhejiang and Guangdong, to directly sell municipal bonds in a pilot scheme that could factor into cleaning up an estimated $3 trillion of public debt.

In an interview with the Minister of Finance, Lou Jiwei said China will create a financing system through which the sale of municipal bonds will be a major source of funding for local governments. But Lou said a standardized management system for local bonds and a thorough risk pre-warning mechanism should also be established to prevent debt risk. The financial report systems and credit rating system would be taken into consideration, he said.

"The two basic systems would help investors and the public to better understand the government’s property holdings, through publicization of assets and liabilities. Also important would be a disclosure of the credit record. Therefore, the local government should welcome this news, which could improve the environment for investment. A balance sheet and credit record could also help in assessing the government’s performance,” Lou Jiwei said

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