Authorities move to prohibit illegal financing activities of local governments

On 24 December 2012, the Ministry of Finance, the National Development and Reform Commission (NDRC), the People’s Bank of China and the China Banking Regulatory Commission (CBRC) jointly issued and implemented the Notice on Putting a Stop to Illegal Financing Activities by Local Governments (Cai Yu [2012] No. 463).

Document No. 463 mainly takes aim at: the construction of public works projects financed by local governments and their financing platform companies through the attraction of funds from the public, repurchase building-transfer (BT) and other such borrowing methods; injecting capital into or providing security for financing platform companies in a manner that violates regulations; and illegally taking out government debt through finance companies, trust companies or lease financing companies.

Local governments

Document No. 463 specifies that, without approval, no local government at any level – or any of its agencies, institutions or associations – may directly or indirectly attract funds from the public to construct public works projects. They may not assign the raising of funds to, or arrange for the purchase of wealth management or trust products by, the employees of agencies and institutions, or other individuals, or publicise or induce the public to participate in the financing of projects by financing platform companies.