2010-09-19 17:39

China's central bank has proposed issuing municipal bonds to solve local governments' borrowing requirements, Bloomberg and caing.com reported.

The People's Bank of China also suggested examining government rules for the management of municipal bonds in a report published on its website Friday.

The bank said that local governments are mainly financed by budgets and bank lending, which limits the size of collectable capital and increases risks in the banking system.

With the proposed new rules, the central bank plans to improve transparency in local government financing decisions, and also ensure that capital is used more efficiently, the central bank said in the statement.

Local authorities can also set up financing companies to sell bonds on the interbank market, Bloomberg reported.

By the end of June 2010, loans from local financing platforms totaled 7.66 trillion yuan, 23 percent of which came with potential risks, according to the central bank.