Moody's Investors Service has released a compendium of its research on Chinese local government debt with the underlying conclusion that the potential for a market for such debt is looking increasingly likely. Moody's arrived at its conclusion in the context of reforms announced by the central government during 2013 that aim to create the conditions necessary for a direct borrowing approach. The compendium -- which is titled Chinese Sub-Sovereign Monitor -- contains a total of 22 research items published over the last 18 months. As Moody's notes, while local governments are largely responsible for building China's infrastructure -- which the World Bank estimates will cost USD6.4 trillion over the next 25 years -- their financing options are limited. As a result, local governments in China borrow indirectly through local government financing vehicles (LGFV) and other government-related entities. Such debt is not consolidated in the financial reporting of local governments, and therefore the amounts and terms are not transparent. A comprehensive survey of local governments by the National Audit Office reported that direct and indirect debt of local governments amounted to RMB17.9 trillion at end-June 2013 , or 32.1% of GDP, up from RMB10.7 trillion at end-2010. Moody's notes that China's central government over the past 18 months has made a series of announcements that focus on fiscal reforms, greater transparency and accountability, all of which underlie successful local government debt markets. These culminated in the Third Plenary statements in November 2013 , in which the Communist Party leadership indicated its intention to strengthen local government fiscal and reporting frameworks.
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