Guangdong helps kick off new era

China's municipal bond market may begin next month, with 10 local governments expected to issue debt on their own for the first time.Part of Guangdong's bond issue will be used in infrastructure development, including the new high-speed railway to link Guangdong and Guangxi Zhuang autonomous region. Gong Pukang / For China Daily

Province is the first to appoint credit agency for independent debt issue

A new era in China's municipal bond market may begin as early as next month, with a limited number of local governments issuing debt on their own for the first time.

Guangdong province invited bids for a credit rating agency on Monday. The winner among the nine bidders was Shanghai Brilliance Credit Rating & Investors Service Co Ltd.

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Recruitment of underwriters will begin as early as June 9, China Business News reported.

Guangdong has the second-largest bond quota of 14.8 billion yuan ($2.36 billion) this year, after the 17.4 billion yuan granted to Jiangsu province.

According to the Ministry of Finance, 10 provinces and cities will share the quota for 2014, which totals 109.2 billion yuan.

Apart from Guangdong, no other region has yet taken concrete steps toward an issue.

The program is the latest expansion of a pilot program that started in 2011, which was designed to give local governments more freedom in borrowing. Previously, local government bonds were guaranteed by the central government, which also made the debt payments.

Another part of the new borrowing system is the requirement for credit ratings. In a speech late last year, Finance Minister Lou Jiwei said that local governments' bond issues should be built on a sound credit rating system to contain both the scale and risk of the debts.

"By introducing credit ratings and information disclosures, China can better manage local debt and motivate local governments to control borrowing," according to a research note by China Chengxin International Credit Rating Co Ltd, a local partner of United States-based Moody's Investors Service.