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The overall risks linked to local government debt remain generally safe and manageable, according to China’s finance ministry, which released data showing that the country’s local government debt expanded by 15 percent last year.
By the end of the previous year, local government debt grew by approximately 7.29 trillion yuan (around USD 1.05 trillion), reaching a total of 54.82 trillion yuan (about USD 7.88 trillion). This figure stayed below the 57.99 trillion yuan cap approved by the national legislature.
The primary driver of this rapid increase was a record-high level of local bond issuance in 2025. Nearly 10.31 trillion yuan worth of local bonds were issued last year, with 5.38 trillion yuan in new bonds and 4.93 trillion yuan in refinancing bonds to restructure existing debt, according to the finance ministry.
Funds obtained from refinancing bonds mainly went toward repaying maturity debts and replacing implicit liabilities, easing repayment pressures on local authorities. Meanwhile, proceeds from new bonds were predominantly allocated to infrastructure projects that generate revenue.
This marked the first time the issuance of local bonds exceeded 10 trillion yuan annually, with nearly half of these proceeds used to refinance maturing bonds and address hidden liabilities. An expert in local debt issues from the Central University of Finance and Economics explained that the refinancing bonds serve to extend debt maturities and lower interest rates, helping to mitigate risks tied to implicit liabilities.
To address these hidden risks, the government launched a 10 trillion yuan program in 2024 to replace implicit debts over three years. This involves issuing about 2.8 trillion yuan in special refinancing bonds annually to swap out existing covert debts, thereby extending debt terms, reducing interest costs, and lowering overall risk, the expert added.
The rapid deployment of this program significantly contributed to the surge in local debt levels. It also resulted in converting implicit liabilities into explicit ones, which reduces interest payments and extends repayment timelines, effectively alleviating associated risks.
Despite these measures, about 87 percent of principal repayments for maturing bonds are made through new debt issuance, highlighting the considerable fiscal pressure faced by local governments. For some regions, especially those with strained finances, even paying the interest remains challenging.
While funds from new refinancing bonds can cover the principal repayment of maturing bonds, interest payments must be funded through local fiscal revenue, as regulations prohibit rollover practices for interest costs.
The pace of local government debt growth far outstripped the national economy’s expansion and average local revenue last year. Specifically, local governments’ general public budget revenue grew by only 2.4 percent in 2025, whereas their managed fund revenues declined by 8.2 percent, according to official data.
Last year, local governments repaid a total of 3.03 trillion yuan in bond principals—2.62 trillion yuan through refinancing bonds and around 410 billion yuan from fiscal funds. Additionally, interest payments on bonds reached approximately 1.48 trillion yuan, marking a 9.6 percent increase over the previous year.
The average term length of bonds issued in 2025 increased to 15.4 years from 14.4 years in 2024, while the average interest rate dropped to 1.97 percent from 2.29 percent in that period.
Although the risks associated with local government debt are currently under control, the debt level accounts for about 39 percent of GDP, roughly 140.19 trillion yuan (around USD 20.14 trillion), indicating that medium- and long-term risks are gradually building up.
To keep the risks in check, growth in local debt should be moderate. Structural adjustments are recommended, such as increasing the share of general bonds and decreasing the proportion of special-purpose bonds. Additionally, the central government should consider expanding borrowing capacity to alleviate some debt burdens faced by local authorities, the expert noted.
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