The central government has for the first time clarified the definition of general obligation bonds issued by local governments and announced provisional regulations covering such securities, a development that lays the foundation for a true municipal debt market in China.

In a statement on Tuesday, the Ministry of Finance defined "general local government bonds" as those issued for public projects that are not expected to generate revenue, with repayment to come from the issuing jurisdiction's fiscal revenue.

Public projects that are expected to generate revenue will be funded by "special local government bonds", with rules governing that debt to be released later, the ministry said.