Caps on local government debt quota pose more questions than answers

China's top legislature has approved the local government debt quota for this year, but the market is still scrambling to figure out what the actual quota is, a critical question that is unanswered.

Finance Minister Lou Jiwei presented the debt limit proposal to the Standing Committee of the National People's Congress on Monday, and the latter passed it. This is a due procedure under the new Budget Law which stipulates that an approved limit was necessary to rein in local government debt. After the overall ceiling is determined, the central government can allocate limits for each region.

According to a statement issued after Lou's briefing, the actual debt quota for this year would be the combination of the local governments' outstanding debt by the end of 2014 and the new debt quota for this year. The NPC earlier this year approved a 600 billion yuan ($94 billion) new debt quota, but the outstanding debt level is still anybody's guess.