China's regional and local government bond market will continue to develop in 2015, with more issuance than last year, rating agency Moody's said in a report released on Thursday.

Moody's believes the expected development is in line with the recently revised Budget Law, which was enacted on January 1, 2015, allowing more local administrations, outside of the existing pilot bond program, to issue bonds.

The participants are also allowed to issue special purpose bonds in addition to the general obligation bonds, according to the revised Budget Law.

China's Minister of Finance Lou Jiwei also said in July that the 109.2 billion yuan ($17.5 billion) pilot program would be extended beyond the initial eight provincial and two city-level governments.

Moody's said the reform fitted with the State Council's guidelines that encouraged local governments to issue debts directly, to reduce their reliance on risky indirect borrowing.

Regarding the challenges to the market's development, Moody's said a current lack of transparent data on regional and local government finances posted the biggest obstacle.

Regional and local governments had built up a debt of 17.9 trillion yuan as of June 2013, according to the most recent data from the National Audit Office. Much of this debt had been borrowed through third parties to avoid restrictions on direct regional and local government borrowing.

The emergence of the regional and local government bond market will be closely watched by investors in the capital market, Moody's said, as regulatory reforms start to take effect.