(Yicai Global) Aug. 2 -- Local Chinese governments have issued two types of municipal project bonds -- land reserve bonds and toll highway bonds.

These bonds are not counted towards local debt quotas, but governments should be mindful of their finances when issuing such bonds, the Ministry of Finance said on its website today.

The industry needs to develop and realize dedicated bonds that strike a balance between project revenue and financing, while setting up the corresponding mechanism for bonds, project assets and revenue to build up the Chinese municipal bonds based on national conditions, the Ministry of Finance said.

Chinese municipal bonds are quite different from those in the US and some other countries as bond size in China is restricted by the central government and only the 31 provincial governments and 5 cities with independent planning status can issue them, experts told Yicai Global.

Finding a balance between project revenue and financing in bond issuance while allowing for marketization is a good way to control risks, they said.

The municipal bond size must be limited by a quota specified by the central government, and the bonds have to be issued by municipal-level local governments, said Zheng Chunrong, professor at the Shanghai University of Finance and Economics. These are the two features of Chinese municipal bonds, Zheng said.

The pilot bonds for the land reserve and toll highways from the Ministry of Finance have distinguished characteristics of municipal revenue bonds, said Wen Laicheng, executive head of the Central University of Finance and Economics-Pengyuan Local Finance Investment and Financing Research Institute. These different kinds of bonds operate separately to mitigate risk, Wen said.