In April, during the Chinese Communist Party’s Political Bureau meeting, a signal of “debt restructuring to prevent risks” was released, coinciding with the emerging pressures of local government debt and concerns within the financial system in China. Village and town banks are accelerating their integration, credit card issuance continues to shrink, bank asset quality is deteriorating, multiple risks are escalating, and financial stability is facing a new test. Analysis indicates that the Chinese economy is deeply mired in a debt trap, with a very pessimistic outlook for the future.
On May 6th, according to a report by the Chinese media outlet “The Paper,” the issuance of local government bonds in the first four months of this year reached 3.92 trillion yuan, out of which new bond issuances amounted to approximately 1.65 trillion yuan, a year-on-year increase of 10.4%; while refinancing bond issuances were around 2.27 trillion yuan, a year-on-year increase of 11.1%, setting a new high for bond issuance in the same period in history.
According to data from the Chinese Ministry of Finance, as of early 2026, the outstanding local government debt balance was 56.59 trillion yuan. However, the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) believe that by 2024, China’s government debt had already reached 100 trillion yuan.
Chinese expert Wang He previously mentioned in an article for “Epoch Times” that by the end of 2025, the Chinese central government had a debt repayment obligation of 50.28 trillion yuan (including national debt of 41.23 trillion yuan), and potentially additional debts of at least 28 trillion yuan (policy bank debts); the outstanding local government debt was around 54.82 trillion yuan, potentially totaling 72 trillion yuan (Local Government Financing Vehicle debts).
“The Chinese government’s debt-to-GDP ratio (the proportion of government debt balance to the total GDP) will not be as low as 68.5%, but has exceeded that of the United States, exceeding the average government debt-to-GDP ratio of G20 and G7 countries,” Wang He emphasized. Additionally, “in 2026, the authorities plan to add 11.89 trillion yuan in government debt,” and the size of hidden debts is difficult to estimate. The Chinese government is now unable to extricate itself from this debt trap.
According to the news from the official Xinhua News Agency, on April 28th, the Chinese Communist Party’s Political Bureau held a meeting emphasizing the “orderly resolution of local government debt risks” and the need to “effectively prevent and resolve risks in key areas.” Within the discourse system of the Chinese Communist Party, this implies that risks in areas such as local government debts on the mainland have already emerged or are about to emerge.
The “Securities Times” reported that as of April 13th, about 1.3 trillion yuan in local government bonds had been issued, used to replace existing implicit debts, accounting for approximately 46% of the planned total issuance of 2.8 trillion yuan for the year.
Under various pressures, Chinese local governments have had to accelerate their debt restructuring and deleveraging processes, even aiming to achieve zero debt.
In earlier years, the Chinese Communist Party had set the government debt ratio (debt balance to comprehensive financial resources) at 100% to 120% as the warning line for local government debt risks. However, with the increasing local borrowing in recent years to drive development, the debt ratio of some local governments has exceeded this warning line.
Data show that as of early 2026, the outstanding local government debt balance has approached at least 57 trillion yuan; when considering hidden debts, the overall scale is believed to potentially exceed one trillion yuan.
Veteran media figure Mike Li told Epoch Times, “In the past two years, small and micro loans, consumer loans (with an average loan cycle of three years) have begun to mature, mainly issued by joint-stock commercial banks and local small and medium banks. The overdue repayment rates for such loans are rising, leading to a further increase in non-performing loans.”
Since the beginning of this year, over 70 village and town banks in China have been cancelled or restructured, officially termed as “reform to mitigate risks.” However, in terms of operation and structure, this is essentially a concentration and transfer of risks.
Mike Li pointed out that a more concerning issue is the deterioration of the debt structure. On one hand, local governments are still massively issuing refinancing bonds, essentially “borrowing new and repaying old”; on the other hand, the sluggish growth of fiscal revenue weakens the debt repayment capacity further.
The so-called “debt restructuring,” he believes, is essentially extending the repayment period, shifting risks to the future, rather than truly resolving the original debts, gradually transforming them into long-term institutional burdens.
Additionally, official data indicates a continuous decline in the scale of credit cards in China. According to the “2025 Payment System Operation Overview” released by the People’s Bank of China, by the end of 2025, the total number of credit and debit combined cards nationwide was 696 million, a decrease of about 31 million from 2024.
According to the financial news report by Sina, several small and medium banks have also ceased credit card issuance. Institutions like Wuhan Rural Commercial Bank and the Zhejiang Rural Credit Cooperative Banks have successively announced the termination of issuing certain co-branded credit cards due to terminated partnerships or business adjustments. Many banks have stated that existing cards can still be used until their expiry, but no new cards will be issued.
The total number of credit cards issued by China’s financial system has been declining for three consecutive years, dropping by 111 million from the historical peak at the end of the third quarter of 2022, approaching the level at the end of 2018, marking a new low in nearly seven years.
With the release of the annual reports of listed banks in 2025, concerns have been raised about the quality of credit card products across various banks. These reports revealed that among the six major state-owned banks in China, except Postal Savings Bank of China, all five others had higher non-performing ratios for their credit cards at the end of 2025 compared to the previous year.
By the end of 2025, Industrial and Commercial Bank of China saw its credit card non-performing ratio reach 4.61%, a significant increase of 1.11 percentage points from the end of 2024; Minsheng Bank’s credit card non-performing ratio rose to 3.87%, and the non-performing ratio of China CITIC Bank’s credit cards was 3.34%.
Mike Li believes that the main reason behind these concerns is the declining income, low consumer willingness, severe unemployment issues, and a pessimistic outlook for the future.
Due to the sluggish economy, China has also seen a group of so-called “pigeon borrowings.” Mike explained, “This is a nickname for those who rely on one card to pay off another. As they start actively reducing debts at a certain stage, not only are banks discontinuing credit card issuance, but cardholders (consumers) are actively restructuring debts and deleveraging. They are tightening their belts to cope with declining income and save themselves.”
Regarding financial risks in the Chinese banking sector, KPMG’s China Zhentou accounting firm released a forecast report titled “2026 China Banking Industry Risk Radar.” In depicting the comprehensive risk chart of the Chinese banking industry for 2026, the financial risk standing at the core indicates a significant increase across various domains including market risk and bank book rate risk, credit risk, capital, and liquidity risk with 10 items in each region. Only “Capital Management,” one of the 10 items, remains at “unchanged risk,” while the other 9 are labeled as “rising risks” or “risks significantly rising.”
The nine items showing rising risks or significantly rising risks are in the areas of market risk and bank book rate risk, including interest rate risk, exchange rate risk, price volatility risk, and intensified industry competition risk; credit risk regions involving credit structure, asset quality, collateral valuation and management, the trend of scaling bad asset businesses, and market-oriented development; and finally, capital and liquidity risk regions are associated with liquidity risk.
The “China Banking Industry Risk Radar” diagram also shows that the aforementioned risks are core risks, radiating through and impacting the peripheral strategic risks of the Chinese economy, operational and management risks, information technology risks, compliance risks, and reputation risks. Within the four areas affected by these risks, there are a total of 24 items (such as cross-border risks), with only 5 items remaining at an unchanged risk level, while the rest are rising or significantly rising risks.
The report suggests that financial stability risks in China are increasing. While risks in major areas such as real estate, local government debt, and small and medium institutions are being exposed and handled in an orderly manner, the quality of capital and profitability still face multiple pressures such as economic structural adjustments and weak internal and external demands, demanding resilience and adequate capital from banks.