We have done some research and found municipal bonds provide a solution in other countries. A normative, transparent financing mechanism will be established by issuing municipal bonds.

Local financing platforms are like municipal bonds at present. But they are not normative as they do not have a transparent information-disclosing mechanism or a credit-rating mechanism. Pricing is not all done in a situation where information is symmetric. All these bring in risks.

So I suggest the authorities use normative municipal bonds to replace non-normative local financing platforms to avoid fiscal and financial risks.

Apparently, local financing platforms generate local debts - debts for provincial governments, cities or counties.

But if the central government issues bonds for local governments or local governments use local financing platforms to raise funds by themselves, the central government might finally foot the bill. Otherwise local governments can not be sustained. This may lead to fiscal risks which may further transfer to financial risks via the banking system.

To avoid financial risks, we need to replace non-normative local financing platforms with normative municipal bonds. That will be a meaningful area to explore.

songjingli@chinadaily.com.cn