NDRC starts crackdown on debt issuance

The nation's top economic regulator this week further tightened regulation for debt issuance as regulatory authorities pledged to prevent further accumulation of hidden debt by local governments.

Firms planning to issue debts should accurately disclose information and support investors identifying risks, and they are not allowed to receive implicit support in any form from local governments, according to a guideline issued on Monday by the National Development and Reform Commission.

The guideline said companies should draw a clear distinction between their own credit and that of local government.

The guideline reiterates earlier warnings that no fake public-private partnership projects will be allowed as they would increase the implicit debt burden of local governments.

Such projects are those with financing in a disguised form and pseudo-government procurement of services.

Companies, security companies or credit ratings agencies found to have violated the rules will be punished and their information will be shared across different regulatory bodies, according to the guideline.

More explicit instructions, such as requiring companies to declare that debt issuance will not incur new local government debt, show the regulators' strong intention to fend off risks, but the government may need to introduce more stringent rules to prevent further implicit debt accumulation, according to a Beijing-based analyst who declined to named.

Earlier data from the Ministry of Finance showed outstanding local government debt stood at 16.4 trillion yuan by the end of 2017, which remains under the limit set at the beginning of the year by the National People's Congress.

But the figure did not include off-sheet debt as local governments are not responsible for contingent liabilities, according to the ministry.

The ministry pledged to ramp up pressure to rein in local government debt this year.

Qin Han, chief fixed-income analyst at Guotai Junan Securities, said the government may need to widen financing channels and reduce some financing pressure of local governments.

Zhang Bin, a senior researcher with CF40 Finance Forum, a think tank, said the government should introduce more products to help local governments meet long-term financing demand for infrastructure projects.