(Yicai Global) Aug. 24 -- Some local governments in China have arbitrarily withdrawn guarantees and commitments to debts for state-owned enterprises following repeated orders from the central government to no longer provide such pledges. The move is part of an effort to better regulate debt at local government level.

Ningxiang County government in east-central China's Hunan province declared all of its financing guarantees void yesterday, Taiwan-based news outlet China Times reported.

Financial institutions should no longer ask for or accept guarantees, commitments and comfort letters when providing funds to entities, the county-level government said. This renders all guarantees and commitments issued for SOE financing since the start of 2015 void, and related commitments are no longer valid.

Institutions in possession of these relevant guarantees and commitments should return them via the original channels in accordance with laws and regulations, the government said.

Xiangtan is another local government in Hunan province that has withdrawn guarantees for such funding and has issued a statement very similarly-worded to Ningxiang's.

Almost all financial institutions in Hunan have invested in local funding vehicles, and some firms have chosen not to return guarantee pledges related to the order, said a local company owner in the province.

His company will demand early repayment from local financing vehicles if it is to give back the guarantee, he added. In the future, he will not accept such local government commitments and will ask for higher borrowing costs if local governments seek funding.

The market had been expecting a government order on the guarantees this year after increasing constraints on their issuance at local government level.

Ningxiang County unilaterally declaring the letters as void without releasing any corrective measures does not fit closely with the government's attitude toward contracts and could be akin to shirking responsibilities.

Local government commitment letters can sometimes play a role in cases of illegal and irregular money borrowing.

Authorities at county level around the country have been withdrawing guarantees recently, though they have encountered difficulties as some financial institutions report to higher-level units, slowing the process down. Others ask for additional guarantees, and some even demand early repayment, local government officials said.