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A rising number of local governments across China are committing to eliminating hidden debt this year while gradually closing down the government financing platforms that served as borrowing channels for such liabilities. This move aligns with the country’s broader strategy to mitigate risks tied to local government debt.
In particular, both the northwestern province and the southwestern Xizang Autonomous Region have announced plans to settle all outstanding hidden debt within their jurisdictions within the current year, according to official local documentation. Other areas, including Gansu province in the northwest and Guangxi Zhuang Autonomous Region in the south, are also prioritizing the prompt clearance of liabilities in eligible cities and counties.
Hidden debt refers to financial obligations incurred by local governments through control of financing platforms, which are not reflected on official fiscal balance sheets, posing substantial regulatory challenges.
In response, authorities introduced a series of debt management measures in 2024, permitting local governments to issue new bonds to replace existing hidden debt. Under these policies, local entities are allowed to issue up to 2.8 trillion yuan (about $409.8 billion) in new bonds annually from 2024 to 2026 to swap out older hidden liabilities.
So far, almost half—about 1.3 trillion yuan (46%)—of this year’s bond issuance quota has already been utilized. Data from a risk monitoring platform indicate the quotas are being actively used to address hidden debt.
Major cities like Beijing, Shanghai, and Guangdong province have successfully fully cleared their hidden debt. Additionally, the central government has mandated that all financing platforms be shut down by the end of June 2027 to prevent the formation of new hidden liabilities. Several provincial regions, including Inner Mongolia in the north, Jilin in the northeast, Henan in the central part of the country, and Jiangxi in the east, have set timelines to dismantle all such platforms within their areas.
The impact of these policies is becoming evident. By the end of September last year, the nationwide count of government financing platforms had decreased by 71% from the end of March 2023, with total debt reduced by 62%, according to data from the People’s Bank of China.
Alongside efforts to mitigate debt risks, the recent Government Work Report emphasized the importance of enhancing debt monitoring and assessment tools and establishing a unified long-term framework for managing government debt, according to Luo Zhiheng.
Once hidden debt is converted into transparent liabilities, the reported debt ratios for local governments will likely increase. In response, the central government is expected to ease debt assessment standards slightly, providing local governments with more flexibility to allocate funds toward productive projects while maintaining a balance between risk management and economic development.
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