In the first 11 months of 2025, the total amount of local government bonds issued by the Chinese Communist Party exceeded over 10 trillion yuan, setting a new record. Rating agencies have indicated that there is a funding gap of around 3.4 trillion yuan in local government financing vehicles. Analysts warn that without substantial fiscal policy reform, China may fall into a long-term debt spiral.
A debt spiral refers to a situation where debt continues to increase, but the economy fails to grow in tandem, leading to a vicious cycle that makes resolving debt issues increasingly difficult.
According to “Fitch Ratings,” in an article published on December 2, 2024, China’s 15-year comprehensive debt service ratio stood at only 0.42. This indicates that the Local Government Financing Vehicles (LGFVs) are unable to cover the approximately 3.4 trillion yuan funding gap with their EBITDA and must rely on refinancing and government support to bridge the gap. The current debt substitution capacity can only address around 30% of the shortfall, leaving approximately 2.4 trillion yuan of unfunded gap unresolved.
The Debt Service Coverage Ratio (DSCR) is calculated as the annual post-tax profit divided by (debt principal divided by debt term). A higher DSCR indicates a company’s stronger debt repayment ability.
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization” and reflects a company’s pre-interest, tax, depreciation, and amortization profits over a certain period, showcasing its core business operational capabilities.
The profitability of China’s LGFVs is generally low. According to a report by “Nikkei Asia” on November 3, nearly 10% of LGFVs are operating at a loss, with only 3% achieving a return on equity of over 4%.
As of December 2024, the total net profit of local government financing platforms amounted to around 550 billion yuan, but subsidies received exceeded 1 trillion yuan. Excluding subsidies, nearly 50% of LGFVs are in a deficit position.
Local government financing platforms rely on implicit guarantees from local governments and policy support to finance the construction of urban roads, bridges, wastewater treatment, and other public infrastructure projects. The debts incurred from these investments are commonly referred to as “urban investment bonds” or “implicit debts”.
Given that these investment projects are mostly low-profit infrastructure projects, the road to debt repayment for these platforms is expected to be exceptionally long.
“Nikkei Asia” analysis suggests that China’s local debt situation has entered a dangerous phase. While loose monetary policies and implicit state guarantees have so far averted a crisis, structural imbalances such as declining land revenues, opaque local government financing, and sluggish nominal GDP growth are exacerbating the situation.
Without significant fiscal policy reform and a reevaluation of the infrastructure-led growth model, China risks getting trapped in a long-term debt spiral, hindering the achievement of its development goals and undermining global investor confidence.
According to the same report by “Nikkei Asia,” as of the end of November, the total amount of local government bonds issued exceeded 10 trillion yuan for the first time in history, closely tied to the decline in local government land sale revenues.
From January to October of this year, China’s total revenue from land transfers by local governments was slightly less than 2.5 trillion yuan, a significant drop compared to the over 8.7 trillion yuan in land sale revenue for the entirety of 2021.
The real estate market is also sluggish. Analyst You Zipei from China International Securities stated that more than 10% of unsold properties have no interested buyers. He predicts that the total real estate sales in 2025 will be around 3 trillion yuan, marking a decrease of over 5 trillion yuan from the peak.
As of the end of 2024, official figures from the Chinese government indicate that local government debt balance totaled 58 trillion yuan.
Finance Minister Lü Fa’an of the Chinese Communist Party stated on September 12, 2025, that as of the end of 2024, the total amount of debt for the CCP government was 92.6 trillion yuan, with local government’s implicit debts at 10.5 trillion yuan, national debts at 34.6 trillion yuan, and local government statutory debts at 47.5 trillion yuan.
However, other sources provide significantly higher figures. According to data from Shanghai Dazhihui Information Services Co., Ltd, as of the end of 2024, around 4,000 LGFVs had issued interest-bearing debts totaling 87 trillion yuan, along with 47 trillion yuan from local government bonds, reaching a total of 134 trillion yuan (approximately 18.9 trillion US dollars).
The International Monetary Fund estimates that by the end of 2024, the debt of local government financing platforms (LGFVs) had reached 65 trillion yuan. While estimates vary, it is generally believed that the size of the CCP’s local government implicit debts ranges between 60 trillion and 80 trillion yuan.