China Announces Plans For Local Budget Transparency

4 September 2014

China’s State Council Sept. 3 announced plans to improve budget transparency, according to a statement described in a Global Times report and a Dow Jones article.

The publication of complete budgets should also be done at the local level, said the State Council,

The Dow Jones account said the plan is to eliminate off-budget expenditures, but it also references a possible exception for secret information, according to the Dow Jones report.

The moves same as China said that local governments would be allowed to raise money from the bond market for the first time.

“The revisions to China’s Budget Law, passed on 31 August, represent a significant reform, providing a framework for significantly greater transparency and accountability for local government debt management,” commented Fitch Ratings in a statement.

As described by Fitch:

The new framework includes requirements to establish multi-year rolling budget plans, placing local revenues and expenditures under the supervision of local peoples’ congresses, creating a debt-alert system, and rules to ensure that capital raised through bond issuance is for public service-related capex and not for operational spending.

It also requires the publication of local governments’ balance sheets, local government bonds to be rated, and mandates central government oversight. Ultimately, these reforms are likely to result in the channeling of LGFV debt to a more transparent bond market.

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