Local debt, accelerate progress

To prevent and resolve local debt risks, the work of replacing local governments’ hidden debts is being accelerated this year.

According to data from the Enterprise Early Warning Platform, as of March 30 this year, local governments have issued special refinancing bonds for replacing hidden debts amounting to approximately 0.96 trillion yuan, accounting for nearly half of this year’s planned issuance scale (2 trillion yuan).

The government work report, while deploying this year’s government work tasks, requires actively and orderly resolving local government debt risks.

According to the arrangements of the previous central comprehensive debt reduction plan, this year, local governments will issue 2 trillion yuan in special refinancing bonds and 0.8 trillion yuan in new special bonds to replace existing hidden debts, achieve interest rate reductions, and alleviate local debt risks. The aforementioned data also reflects that the debt reduction efforts are still prioritized this year.

With the rapid implementation of local government bond replacements for existing hidden debts in recent years, the scale of local governments’ hidden debts has been rapidly reduced.

According to data from the Ministry of Finance, by the end of 2023, the balance of hidden debts for local governments nationwide will be 14.3 trillion yuan, decreasing to 10.5 trillion yuan by the end of 2024.

Luo Zhiheng, chief economist at Yuankai Securities, stated that the total issuance scale of various local government bonds for replacing existing hidden debts will be approximately 3.1 trillion yuan by 2025, and it is expected that the balance of local governments’ hidden debts will decrease to 7.4 trillion yuan by the end of 2025. If local governments use their own financial resources to repay hidden debts, the reduction in hidden debts will be even greater.

As the aforementioned hidden debt replacements have rapidly taken effect this year, the balance of hidden debts will be further reduced.

Data from the Ministry of Finance shows that after the full issuance of the 2 trillion yuan of local government bonds for replacing existing hidden debts in 2025, the average interest cost of debts across regions will decrease by more than 2.5 percentage points. The Ministry of Finance previously estimated that the comprehensive debt reduction plan would save approximately 600 billion yuan in interest expenses over five years (2024-2028).

Some regions have already felt a reduction in interest expenses. For example, this year’s budget report from Guangxi reveals that the issuance of special bonds to replace existing hidden debts in 2025 will save over 1 billion yuan in interest annually.

After local government hidden debts are replaced with government bonds, the repayment periods are also significantly extended, alleviating the current repayment pressure on local governments.

Luo Zhiheng indicated that by 2025, the average remaining maturity of local government bonds nationwide will be 10.5 years, with special bonds for replacing hidden debts having an average issuance term of as long as 19.8 years. By issuing government bonds with longer cycles to replace shorter-term hidden debts, risk is alleviated over time.

Local government financing platform companies are the main entities for hidden debts. As hidden debts are rapidly reduced, many government financing platform companies are transitioning to ordinary state-owned enterprises and no longer assume government financing functions, which also aims to curb new hidden debts and avoid “reducing debts while accumulating new ones.”

According to the report disclosed by the National Development and Reform Commission regarding the execution of the 2025 national economic and social development plan and the draft plan for 2026, over 82% of financing platforms had exited as of the end of last year, and the scale of operational financial debts of financing platforms has decreased by over 74%.

Luo Zhiheng stated that local government financing platforms are currently accelerating their exit and promoting more urban investment platforms to shift toward market-oriented operations and real operations through asset injections, debt restructuring, and revitalizing “three assets,” achieving a “true exit.”

The government work report calls for increasing financial and fiscal support this year, optimizing debt restructuring and replacement methods, and using multiple measures to resolve the operational debt risks of local government financing platforms, promoting reform and transformation in a classified and orderly manner.

Luo Zhiheng mentioned that the debt of financing platforms is mainly divided into two parts: local governments’ hidden debts and operational debts. The operational debts of financing platforms differ from hidden debts, as they are enterprise debts formed from market-based operations, mainly resolved with the support of financial institutions. Last year, localities strengthened fiscal and financial coordination by building mechanisms for government-bank-enterprise connections, raising emergency funds, promoting debt restructuring and replacement, and exploring new paths for risk isolation, effectively resolving the operational debt risks of financing platforms, particularly high-interest non-standard and public debts.

Currently, the overall risk of local debts is safe and controllable. According to data from the Ministry of Finance, as of the end of 2025, the balance of local government debts will be approximately 54.82 trillion yuan, within the debt limit approved by the National People’s Congress.

Luo Zhiheng believes that last year, under the promotion of the “comprehensive debt reduction plan,” the work of resolving local debt risks shifted from an emergency state to normalized supervision, achieving significant results in six major areas: resolving hidden debts, reducing debt costs, managing operational debts, clearing outstanding accounts payable, transforming financing platforms, and building long-term mechanisms, thereby reducing the burden on local governments, restoring corporate vitality to some extent, and smoothing the economic cycle.