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On September 24, a group of experts emphasized that the central government should take on a larger share of the nation’s debt to alleviate financial pressure on local governments and to rebalance the distribution of debt responsibility between central and local authorities. During a recent seminar focused on key issues in China’s macroeconomy, analysts pointed out that local governments currently shoulder a larger proportion of debt than the central government, which increases financial risks at the local level. They suggested that a gradual shift should be made so that the central government begins assuming more debt responsibility.
It was recommended that Beijing should slightly boost its borrowing capacity to reduce the debt burden faced by local administrations. However, experts stressed the importance of ensuring that borrowed funds are used efficiently. A dual-performance evaluation system was proposed to motivate local governments to manage their debt responsibly and improve oversight.
To mitigate the risks associated with local implicit debts, the government implemented a major debt resolution strategy at the end of last year. The main component involved issuing 10 trillion yuan (roughly USD 1.4 trillion) in local government bonds between 2024 and 2028 to replace existing hidden debts—this effort has already seen the completion of the 2024 debt swap and most of the 2025 issuance, amounting to approximately 2.8 trillion yuan. So far, more than 5 trillion yuan of concealed debt has been refinanced through these measures.
Furthermore, an additional 1 trillion yuan (around USD 140 billion) in local government bonds is expected in 2024 to swap out more hidden liabilities, according to Yuan Haixia, director of the research institute at China Chengxin International Credit Rating. Yuan warned that local revenue growth is stagnating while liquidity pressures mount, particularly in regions burdened with high-interest payments. Issuing more bonds could help ease existing debt risks and give local governments some financial flexibility.
Since debt maturities are uneven across regions, it’s recommended that refinancing efforts be tailored to the specific needs of local authorities. Luo Zhiheng, chief economist at Yuekai Securities, advocated for optimizing debt resolution approaches and increasing debt ceilings when necessary—such as by prioritizing debt quota usage—to enhance short-term debt management.
The government plans to continue implementing strategies to tackle hidden debt risks. Recent statements from the finance ministry indicate that part of the debt quota allocated for 2026 will be used in advance, with multiple approaches being employed to resolve outstanding hidden debts.
Despite these challenges, the overall level of government debt remains manageable, with the debt-to-GDP ratio ending 2024 at 68.7 percent, notably below the G20 average of 118.2 percent.
The seminar was organized collaboratively by China’s National Academy of Development and Strategy at Renmin University, the university’s School of Economics, and China Chengxin International Credit Rating.
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