China is moving to correct irregular behavior in the fundraising of local governments as part of efforts to rein in financial risks amid a firming economy.

In a notice released Wednesday, the Ministry of Finance (MOF) asked provincial authorities to start self-examining their financing practices as soon as possible and to rectify all irregularities by the end of July, with progress to be tracked by MOF local supervisors.

The relationship between governments and local financing platforms should be properly handled, and the latter should transform into market-based state-owned enterprises that can stay clear of government intervention.

Local governments are allowed to set up investment funds with private companies and conduct public-private-partnership cooperation, but debt financing is strictly prohibited.

The MOF will take actions to improve financing systems of local governments, establish a monitoring and risk control mechanism, and promote better information disclosure.

Chinese financial regulators are channeling more energy into risk control and de-leveraging as solid GDP growth in the first quarter has provided more room for such adjustments.

Email: gaohan@nbd.com.cn