Jiang and Ai said that most all local governments had issued debt in such disguised ways, but it was difficult to estimate the scale of these debts. However, Jiang said, local governments were keen to issue debt. In March alone, Beijing, Shanghai and Guangdong issued medium-term bills on the inter bank market, raising 25 billion yuan. The issues were made through similar means as those described above.

Another "gray area" is trust products. CITIC Trust, a private company, issued 3 billion yuan in three-year trust products to finance infrastructure construction, rail transport, water and environmental protection projects in the northern city of Tianjin.

Jiang said that there were no unified criteria defining what sort of company was allowed to issue "quasi" local bonds.

There was also regulatory risk, because the guarantees were technically illegal.

All these gray areas and loopholes helped expose investors in "quasi" local bonds to latent default risks, especially in the absence of a credit assessment system, Jiang noted.

"It's difficult for investors to analyze credit risks of such bonds, because they are often sold through private placement instead of public bidding," he added.

(Xinhua News Agency March 27, 2009)