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The central government in China plans to issue a larger share of new debt this year compared to local governments for the second consecutive year, as the country works to adjust its debt structure to ease fiscal pressures on local administrations and mitigate debt-related risks.
According to the full government budget released yesterday by Xinhua News Agency and submitted by Finance Minister Lan Fo’an on March 5 to the Fourth Session of the 14th National People’s Congress, China aims to raise 11.89 trillion yuan (approximately 1.7 trillion USD) in new government debt in 2023.
Of this amount, roughly 56.3%, or about 6.69 trillion yuan (roughly 973.2 billion USD), will be issued by the central government via treasury bonds. The remaining 43.7% will come from local governments.
This marks the second straight year where the central government’s new bond issuance surpasses that of local governments. Last year, the central government issued 56.2% of the total new bonds, totaling 6.66 trillion yuan, while local entities issued 43.8%, amounting to 5.2 trillion yuan. Historically, from 2017 through 2024, local governments have consistently issued a larger proportion of new bonds than the central government.
Luo Zhiheng, chief economist at Yuekai Securities, explained that the portion of new debt issued by local governments increased annually from 2015 to 2022, coinciding with when local bond issuance was permitted under a new budget law enacted that year. This led to significant growth in special bond quotas allocated to local infrastructures projects each year.
However, Luo cautioned that an excessive reliance on local government borrowing could pose financial risks, including short-term borrowing cycles, high interest rates, limited repayment capacity, and irregular borrowing patterns. Such risks contribute to the overall fiscal strain on local authorities and heighten debt vulnerabilities.
By comparison, the central government has greater borrowing capacity, faces lower interest costs, and can leverage debt as a crucial policy instrument to influence economic and social outcomes, noted Wen Laicheng, a professor at the Central University of Finance and Economics.
The shift in debt issuance proportions also signals a change in the purpose and role of government borrowing, according to Zheng Chunrong, a professor at Shanghai University of Finance and Economics.
“In the past, when local governments represented a larger share of debt issuance, China was in a phase of rapid urbanization. Local governments needed to borrow extensively to finance large infrastructure projects and deliver public services. At that time, a higher local debt share was justified,” Zheng said.
Now, with urbanization slowing, launching new infrastructure projects has become less urgent. Some local governments are also beginning to face debt risks, emphasizing the need to reduce their debt loads. Meanwhile, the central government is raising funds to support various economic stimulus initiatives amid a more complex and unpredictable domestic and global economic environment. This explains the increased central government borrowing share.
The central government’s share of new debt started to increase after October 2023, following the Central Financial Work Conference’s recommendation to optimize debt structure between the central and local levels. Despite this, local governments still hold a significant share of outstanding debt since they borrowed far more than the central government for many years.
Excluding implicit local debt, the total government debt in China was about 96.05 trillion yuan (around 13.9 trillion USD) at the end of last year, according to the Ministry of Finance. Of this, central government debt was 41.23 trillion yuan (roughly 5.9 trillion USD), representing 43%, while local government debt reached 54.82 trillion yuan (about 7.9 trillion USD), accounting for 57%.
Wen suggested that China could learn from other countries’ experiences and gradually adjust its fiscal system, increasing the central government’s share of total debt to more than 60% over time.
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