Weakest link will determine success of muni reform

China's push for a municipal bond market could raise the pressure on provinces that are already struggling to fund massive debt, effectively creating a two-tier market dominated by the nation's major cities and financially strong regions.

The challenge for investors will be how to assess risks of different provinces in the world's third-largest bond market as the central government tries to withdraw its implicit guarantee of their debts and introduce market discipline.

The central government has decided to allow 10 cities and provinces to sell municipal bonds, an expansion of a pilot program with one significant change: The issuers will be responsible for repayments.