Third, the stock market revival and housing market recovery have dealt a direct blow to the local bonds. Since the beginning of this year, the stock market has rebounded from around 2,000 points to the current 2,500 points. The return on equity investments has been much higher than the yield of the local bonds. The property market is another reason. Property sales have showed signs of recovery as more people start to bargain hunt for homes. Therefore, few people would be interested in buying bonds with low returns.

The fourth reason is very notable. In the first three months, bank loans surged to a record high to the extent that 90 percent of the government-designated new loan quota in 2009 had been fulfilled. The amount of new loans issued has surpassed 4.58 trillion yuan ($670 billion) so far, filling the market with ample liquidity. Most recently, the central bank has started absorbing excessive money in the market through open market operations, which indicates excessive liquidity has once again become a problem. More money in the markets could spur stock market transactions while investors forego bond purchases.

Some economists have called for raising the interest rate of local bonds. But in my opinion, as long as the systematic loopholes are not wiped out, the higher interest rate would not help local bond sales anyway. Local governments went on a "bond rush" after the Central Government issued its decree for local bond issuances. Investors feared the local governments might misuse the money they raised from bond sales for rapid economic growth, so they hesitated to buy the bonds.

The cold welcome in the market is not a matter of supply and demand. It reflects people's concerns about whether local governments are efficient and pragmatic in using money raised from selling local bonds. To make the bonds more attractive, the governments must be fully clear about the investment target and ensure there is no interference in the usage of the funds. Furthermore, judging from the current investment trends in the stock and property markets, liquidity might soon turn from ample to excessive, which would mean more problems for the country's economic development. That is another reminder brought about by the disappointing sales of local bonds.