China’s Cabinet signalled yesterday it is closer to letting local governments directly sell bonds for the first time and said it would phase out opaque financing vehicles that are thought to have built up trillions of dollars of high-risk debt.

In a sweeping statement, the country’s top economic planner, the National Development and Reform Commission (NDRC), said Beijing would deliver stable economic growth whilst pursuing reforms.

The promise to stay focused on reforms would appease critics who worry China’s enthusiasm for bringing about painful changes may be on the wane as its economy stumbles.

The uncertain outlook for the world’s second-largest economy was underscored yesterday by remarks from a senior Chinese trade official, who said the country has a tough road ahead if it wants to meet its 7.5 per cent trade growth target this year.

Yet the NDRC said that enacting change is a “first priority” for the government and hopes to make breakthroughs this year in key areas.

On fiscal reform, which caused a market stir yesterday after Chinese media reported that China would allow 10 local governments to directly sell municipal bonds, the NDRC signalled that the government won’t disappoint investor expectations.

It said China would create a financing system for local governments that will let the sale of municipal bonds be a major source of funding for governments.

Financing vehicles, which are set up by local governments to borrow on their behalf so as to get around laws that prohibit governments from borrowing directly from any parties, would also be phased out.

Beijing would set limits – or quotas – on the amount of debt that can be raised by local governments, it said.

“The policy has been made talked about several times, so the market is now waiting for details, in particular how the quotas will be set,” said a trader at a bank in Shanghai.