"There is no clear cut [line] between local government debt and corporate debt," Tommy Xie, an economist at OCBC, said in a note Thursday.
"The switch of funding channel from local government funding vehicles to a more transparent bond market will be positive for the development of onshore bond market," Xie said. "Given the leverage ratio is likely to be shifted from the corporate sector to sovereign under the reform, coupled with other reform, this may help lower the funding costs for the real economy."
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To be sure, there were some grains of salt to go with the positives.
Lombard's Beamish believes the cap on local government debt doesn't go far enough.
"That's the easy part," said Beamish, who has been bearish on China's outlook. She's looking for tougher reforms, such as liberalizing interest rates and the capital account.
She's also concerned that the cap on debt just sets another control on the local governments.
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"The reason all this shadow banking arose around local governments was that they had unpleasant [growth] targets they couldn't meet without taking on debt," when they weren't allowed to issue bonds, she noted, adding she's concerned the caps will spur local officials to search for other financing routes.
Others cautioned that while the changes are important, there won't be any instant results.
"All of this debt on their balance sheets won't be converted to [bonds] within 12 months," said Debra Roane, a senior credit officer at Moody's Investor Service.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1