China Environmental Law

We previously wrote about China’s initial moves aimed at permitting local governments to issue bonds.  Caijing has just published an article which brings us up-to-date on these efforts. 

Against the backdrop of the call for local governments to pony up 600 billion yuan in 2009 toward the central government’s 4 trillion yuan stimulus package, “the Ministry of Finance (MOF) and National Development and Reform Commission (NDRC) are working on a plan that could allow local governments, including provinces and municipalities, to raise their stimulus funds by issuing bonds.”

Local governments are not currently permitted to issue bonds, but they have found other ways to raise funds, and estimates of local indebtedness in China range from 1 to 10 trillion yuan.

At the NPC meeting in March, the government intends to submit “a plan for issuing 800 billion yuan in bonds, including 600 billion yuan in central government debt and 200 billion yuan for local governments.”  Under this proposal it will actually be the MOF who will issue the bonds and pay the interest on behalf of the local government.  The local government will reimburse the MOF and pay “issuing fees.”  If the local government falls behind on its payments to the MOF, the arrearage will be deducted “from annual subsidies to local governments or other funds channeled through Beijing.”  To enact this plan the national law on government budgeting will have to be amended.

There continues to be disagreement between MOF and NDRC over how the money raised by the local bonds should be used.  NDRC wants the money to be exclusively devoted to stimulus projects, while the MOF wants to let local officials use a small portion of the funds for non-stimulus related purposes.

As we noted in our previous post, local bonds could prove to be a good thing for the environment since they would provide a vehicle through which local governments could raise capital for sewage treatment systems and other environmental infrastructure.