Beijing stepped up pressure on local governments on Monday to get their finances in order, issuing new rules for companies which are planning to issue debt.
Chinese firms selling bonds must publicly state the funds raised do not add to local government debt and that they are not serving any government financing functions, according to a notice from the country's top planning agency.
Companies also must not request or accept any type of guarantees from local governments for the debt financing, the National Development and Reform Commission (NDRC) said.
Regulators are trying to get a better handle on the broader systemic risks posed by high local government debt and their often opaque financing. As part of the clampdown, Chinese authorities are working to separate local governments from financing activities of often closely associated but technically independent companies.
“Credit rating agencies should use company financials and project information in credit ratings work, and cannot link the credit rating of companies with local government credit ratings,” the NDRC said.
In particular, Chinese authorities are looking to stamp out the idea that there are implicit government guarantees for investors in state firms if they get into trouble.