China is taking actions to correct irregular behavior in the fundraising of local governments as part of efforts to contain financial risks in a firming economy.
The Ministry of Finance (MOF) asked provincial authorities to examine their financing practices as early as possible. Their progress in correcting all irregularities by the end of July will be tracked by MOF local supervisors, according to a notice released on Wednesday.
Governments and local financing platforms should properly manage the bilateral relationship, and the latter should transform into market-based state-owned enterprises that can avoid government intervention.
Debt financing is strictly prohibited, but local governments are allowed to set up investment funds with private companies and conduct public-private-partnership cooperation.
Financing systems of local governments will be improved along with the MOF establishes a monitoring and risk control mechanism, and promotes better information disclosure.
Chinese financial regulators are directing more energy and efforts into risk control and de-leveraging as solid GDP growth in the first quarter has provided chance for such adjustments.
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