At the Tsinghua University Chief Economist Forum in 2026, economists like Lin Yifu, Yu Yongding, Yao Yang, and Li Xunlei reached a consensus that local government debt poses a more urgent threat than real estate. The risks are being transmitted as asset management companies dealing with bad debts and debt resolutions are also facing explosions.
According to reports from Chinese media such as “Caijing” magazine, at the recent Tsinghua University Chief Economist Forum, Yu Yongding, a member of the Chinese Academy of Social Sciences, called for authorities to urgently adopt a more expansionary fiscal and monetary policy to address the pressing issue of local government debt surpassing that of real estate.
Yu Yongding expressed that the local government’s financial situation is a mess and must be changed.
During the “Macroeconomic Policies and Global Rebalancing” roundtable discussion, economists such as Lin Yifu, Director of the Institute of New Structural Economics at Peking University, Yao Yang, Dean of the Ant Financial Academy at Shanghai University of Finance and Economics, Li Xunlei, Chief Economist at Zhongtai International, and Ju Jiandong, Professor at the Tsinghua University School of Finance, all agreed on the urgency of the issue.
Li Xunlei stressed that resolving the local government debt issue is of utmost importance. He stated, “The current pressure of local debt is huge, and there are serious arrears issues.”
Yao Yang believed that the biggest problem facing the Chinese economy currently is the local government debt issue, which is more severe than the real estate sector. The triangle debt derivative from local debt has reached around 30 trillion yuan. He emphasized, “This is just for large-scale enterprises. The entire economy is already barely moving.”
Lin Yifu also suggested that solving the local government debt issue should be handled with the same determination and methods as addressing non-performing loans in banks in 2000. He explained, “Many local debts were acquired through the central government’s active fiscal policies. If they cannot be repaid, they will become bad debts for banks.”
Around 2000, China faced high non-performing loans in the banking sector, with the four major state-owned banks having an NPL ratio exceeding 40%, nearing technical insolvency. To address this, the Chinese Ministry of Finance issued special treasury bonds to recapitalize the banks and established four financial asset management companies to handle the bad loans. In recent years, 60 local asset management companies have been set up in various regions in mainland China.
Data shows that China’s total macro debt (government, corporate, and household) has exceeded 458.6 trillion yuan, with the overall macro leverage ratio climbing to around 319%, far surpassing the GDP for a single year.
As of the end of May this year, the balance of Chinese government debt exceeded 100 trillion yuan, doubling in five years. The transformation of local government implicit debt into explicit debts, coupled with a sluggish real estate market, has put financial pressure, with even the AMC responsible for handling bad debts facing risks.
On the evening of September 18, A-share listed company SanTe’er released a statement involving the “Contemporary System” and its founder Ailuming. Ailuming was fined 11 million yuan and issued a lifetime ban from the securities market. The core platform under the “Contemporary System,” Hubei Tianqian Asset Management Co., Ltd., has accumulated overdue debts of 3.505 billion yuan, involving institutions such as Wuhan Rural Commercial Bank, Western Trust, and Hubei Charity Federation.
Another company, Guohou Asset Management Co., Ltd., was ruled to undergo bankruptcy reorganization by the Intermediate People’s Court of Wuhu City, Anhui Province.
An article by The Economist on August 13 pointed out that Chinese AMCs also assist banks in concealing bad loans, potentially masking at least half or more of the non-performing loans in China. Guohou Asset Management was found to sign so-called “drawer agreements” with banks, where they would buy bad loans before the banks report them, then sell them back after the loans are declared non-performing to collect fees.
The article mentioned that as the ongoing real estate crisis in China further depresses property prices, there may be more bad debts and struggling AMCs coming to light in the future. Many borrowers are using real estate as collateral, which poses risks for smaller local AMCs, potentially leading them down the path of bankruptcy reorganization. Some local AMCs have already received credit rating downgrades from domestic credit rating agencies and are currently on the brink of collapse.