In 2024, the local government of the Chinese Communist Party borrowed a total of 9.8 trillion yuan, marking a 5% increase compared to the previous year and reaching a historical high in borrowing scale. Out of this amount, around 60 trillion yuan was used for the practice known as “borrowing new to repay old.”
According to a report from “First Finance” on January 3, in 2024, the 9.8 trillion yuan borrowed by the local government was divided into two categories based on usage: new bond issuances and refinancing bonds. New bond issuances were used for funding major projects such as infrastructure construction, while refinancing bonds were primarily for repaying maturing debt principal, commonly referred to as “borrowing new to repay old.” In the years following 2024, the Chinese Communist authorities allowed for some new (special) bonds to replace existing hidden debts in order to alleviate the massive accumulated hidden debts of up to 14 trillion yuan.
Public data indicates that in 2024, local governments issued approximately 4.7 trillion yuan in new bond issuances, with around 3.8 trillion yuan allocated to project construction and about 0.9 trillion yuan for replacing hidden debts. Refinancing bonds were issued amounting to about 5.1 trillion yuan. Therefore, out of the total 9.8 trillion yuan in bond funds from the previous year, around 60 trillion yuan was allocated for “borrowing new to repay old,” representing approximately 61% of the total bond issuance amount.
Within the mentioned 60 trillion yuan for “borrowing new to repay old,” roughly half was used for repaying maturing local government bond principal while the other half was for replacing hidden debts. The amount of local government bonds used for “borrowing new to repay old” significantly increased in 2024.
“First Finance” believes that the scale of borrowing by the local government of the Chinese Communist Party reached a historical high in 2024. This can be attributed to the need for more borrowing in order to replace maturing debts and mitigate hidden debts, as well as the slower-than-expected growth in fiscal revenue which necessitates local authorities to increase borrowing to supplement financial resources.
Due to the overall decline in the Chinese economy, the fiscal revenue of the Chinese Communist Party fell below expectations. Even the Minister of Finance, Lan Fo’an, had to admit this fact. During a press conference of the National People’s Congress Standing Committee in November 2024, Lan Fo’an revealed that this year’s fiscal revenue did not meet expectations due to various factors.
According to reports from the “Wisdom Era,” from January to October 2024, the fiscal revenue of the Chinese Communist Party remained in a relatively low growth range. Particularly in terms of local fiscal revenues, some regions experienced sluggish revenue growth, which further exacerbated fiscal pressures.
The “Wisdom Era” attributes the continuous low fiscal revenue to the slowdown in China’s economic growth, resulting in a short-term decline in market vitality that put pressure on tax revenue growth. Additionally, fluctuation in the international market, rising costs, and declining exports further impacted revenue growth.
To increase revenue and sustain local administrative expenses, various regions have intensified their “penalty measures.” In order to boost confiscation revenue, local public security departments have resorted to launching campaigns targeting entrepreneurs across provinces. Incidents like an elderly person in Fujian being fined 100,000 yuan for selling celery for 14 yuan, or a citizen in Nanjing being fined 50 yuan by traffic police for riding an unlicensed bicycle have been exposed. A certain local financial bureau publicly stated in a document that “faced with pressures to balance financial revenue and expenditure, it is necessary to increase the confiscation income collection efforts to ensure the full and appropriate collection of reasonable confiscation revenue.”
According to data from the Chinese Ministry of Finance, non-tax revenue in China was approximately 3.7 trillion yuan in the first eleven months of 2024, representing a 17% year-on-year increase. This amount exceeded the 3.566 trillion scale of 2023. In both October and November 2024, the growth rate of non-tax revenue was around 40%. While not all “non-tax revenue” necessarily comes from fines, the opaque information provided by the Chinese authorities has led to numerous speculations from the public.