The finance ministry said in statement on its website that local governments involved in this experiment would be responsible for repaying their own debt. This is unlike in the past when the ministry would sell bonds on behalf of local governments and was thus also responsible for repayments.
The value of bonds that can be sold must be within an annual limit decided by China's cabinet, the ministry said. Any government that fails to sell as many bonds as it is allowed to in a year cannot carry their unused quotas into the next year.
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For 2014, China has said that local governments can sell 400 billion yuan worth of bonds, so the value of municipal bonds that the 10 governments can sell under this experiment is expected to count towards the 400 billion yuan limit.
The municipal bonds, which can either be sold via auctions or be underwritten by banks, must have maturities of five, seven and 10 years and sold in the proportion of 40 percent, 30 percent and 30 percent, respectively.
Further, local government bonds must be rated by ratings agencies and the prices of central government bonds must be used as the benchmark when pricing municipal bonds.
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The launch of this new bond experiment comes at a time when China is trying to revise its budget law to allow governments to sell bonds. But the process, which has been frustrated in the past by fiscal conservatives who blocked any changes, is expected to be a long one.