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Local governments across 29 provinces in China have completed the issuance of approximately CNY2 trillion (about USD280.6 billion) in special refinancing bonds, aimed at clearing off off-balance-sheet debts. This effort effectively meets this year’s consolidation goal.
The eastern economic hub of Jiangsu led the activity with CNY251.1 billion (USD35.2 billion) in debt swaps involving hidden liabilities. Following were Hunan, Shandong, Guizhou, Henan, and Sichuan, each converting over CNY100 billion of concealed debt, according to financial data from Qiye Yujingtong.
Hidden debt pertains to borrowing through financing vehicles not reflected in official fiscal records, creating significant financial risks. To address this, China rolled out a three-year plan last November to issue local refinancing bonds totaling CNY2 trillion annually, replacing the covert debts.
Among China’s 31 provincial-level regions, Guangdong and Shanghai had already eliminated their implicit liabilities prior to this policy and have opted not to issue any further refinancing bonds.
Last month, the finance minister stated that by the end of August, approximately two-thirds of the CNY6 trillion bond issuance quota had been utilized, including allocations from the previous year. This move lowered the average interest rate on the debts by more than 2.5 percentage points, resulting in interest savings exceeding CNY450 billion (USD63.1 billion).
The initiative has also accelerated the shutdown of local government financing vehicles. By the end of June, over 60 percent of these entities had been wound down, enhancing the financial health of institutions and significantly decreasing systemic risks.
China plans to continue its debt resolution efforts, including releasing part of the next year’s local government debt quota earlier than scheduled this quarter to facilitate faster clearance of remaining hidden debts.
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