Local bonds refer to the bonds issued by local finance and local government departments to raise funds to support the economic development and construction of the areas under their jurisdiction. For example, in order to develop local education, airports, highways, bridges and infrastructure construction should be built. In addition to its credibility, local bonds are generally issued in smaller denominations to attract more small and medium-sized investors, and local bonds can be tax-free. Developing countries rarely issue municipal bonds, but some big cities with independent income as repayment source may issue municipal bonds. Local debt and municipal debt, also known as local debt, are commonly used debt management methods in developed market economy countries. They have dual innovation characteristics: innovation in financial management and debt management systems, and innovation in financial markets and financial instruments.

Compared with national debt, China's local debt is issued by local governments. However, bonds issued by local enterprises are often classified as local bonds in China bond industry. From the late 1980s to the early 1990s, many local governments issued local bonds to raise funds to build roads and bridges. Some of them are even interest-free, and they are distributed to various units in the name of supporting national construction. What's more, they are directly used as part of the salary. However, in 1993, this behavior was stopped by the State Council because of doubts about the local government's ability to fulfill its commitments.

Article 28 of the Budget Law of the People's Republic of China, which was promulgated later, clearly stipulates that "local governments may not issue local government bonds unless otherwise stipulated by law and the State Council". The ban on "local government bonds" continued until 2009. The security of local government bonds is relatively high and there is almost no investment risk. Moreover, the interest income obtained by investors buying local government bonds is generally exempt from income tax, which is very attractive to investors. People who invest in stocks rarely invest in local securities, because although local bonds are safe, the returns are not high, which is not as enjoyable as the returns from stock trading, even though stock trading often loses money.