Debt ceiling will check borrowing

Determined to rein in excessive borrowing, especially those incurred by local government financing vehicles, the cabinet issued a landmark document in October clarifying for the first time that LGFVs could no longer raise funds for regional authorities. Only direct borrowing by local governments, approved by the legislature, would be accepted by Beijing.

Last year, regional authorities were also required to report their outstanding 2014 debt before Jan 5 of this year.

Realizing it would be underwritten by Beijing as long as it was recognized as "government debt", local authorities rushed to include as much LGFV borrowing, which was raised to build infrastructure projects, as they could.

This infuriated the central government, which rejected the results and asked regional governments to produce new figures. As this process dragged on, it delayed Beijing's plans to announce detailed debt data.

"Now debt will be paid through budget revenue as long as it is recognized as 'government debt'. LGFVs will also have to repay their own debts through their own cash flow," Song Weijian, an analyst with China Bond Rating Co, said.

Finally, a clear line has been drawn between "government" and "corporate" debt, which has been welcomed by the markets. The next step should be to disclose detailed debt information as soon as possible. This should include who raised what debt, through what channels, and for what purpose.