China has taken important steps that will lead to greater financial accountability on the part of local governments.

It selected 10 provinces and cities in May to issue municipal bonds independently and assume responsibility for servicing that debt. It's the first time local governments in China have been able to do that.

For their part, the provincial-level governments have been improving their fiscal transparency. Almost all of the 31 such governments now report the extent of their direct and indirect debt on their own websites.

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Debra Roane of the sub-sovereign group at Moody's Investors Service told China Daily that data transparency is "critical" to credit rating agencies' giving a proper rating to municipal debt. The information now disclosed by local governments is neither standardized nor complete, she said.

Under Chinese law, foreign agencies such as Moody's can't take part in rating onshore bonds. But they can participate through Chinese affiliates. For Moody's, that partner is China Chengxin International Credit Rating Co Ltd, in which Moody's owns a 49 percent stake.

"First, we need financial and economic details (of local government-related entities), then governance. And part of understanding governance is to have a dialogue with officials. You have to understand what is the reason and the story behind the numbers," she said.

"When you read financial statements, you're going to have a lot of questions. And if you don't have dialogue, you'll really miss some pieces," she said.

According to Roane, in other countries, financial statements and budgets may also be missing certain information. For example, contingent liabilities may not be completely disclosed. But "to the extent that you meet them once or twice a year and get an update, that's critical to come to a correct rating outcome".

The number is important, but not enough: Raters have to discuss not only the number of today but also what's going to happen to that number in three years, she said.