China’s real estate market is in a slump, with local government finances crumbling and revenues sharply declining, making it difficult to repay debts. According to the latest official data, in the first 10 months of this year, local governments across the country issued approximately 9.1 trillion yuan in bonds, marking a historical high for the same period, with 62% of the proceeds used for debt repayment.
Reports from “First Financial” on November 4th stated that according to data from the Chinese Ministry of Finance and public bond issuance figures, local governments nationwide issued a total of about 9.1062 trillion yuan in bonds in the first 10 months of this year, a year-on-year increase of approximately 23%. The scale of the debt issuance exceeding 9 trillion yuan marks a new historical high for the same period, approaching the total amount of local government bonds issued in the previous year (about 9.8 trillion yuan).
Among them, approximately 4.7 trillion yuan were issued as new local government bonds, with a year-on-year increase of about 2%. Apart from some being used to repay old debts, the majority of the new local government bonds were allocated for the construction of major public welfare projects. Refinancing bonds amounted to 4.4 trillion yuan, representing a year-on-year increase of about 58%.
Local government bonds are classified by purpose as new issuance and refinancing bonds. The former mainly fund construction of major projects such as infrastructure, while the latter are used to repay maturing principal or outstanding debts of local government bonds, a practice known as “borrowing new to repay the old.”
According to data from corporate risk alert systems, in the first 10 months of this year, local governments issued around 1.25 trillion yuan in special additional project bonds, a special fund designated for resolving hidden debts of local governments and clearing arrears owed to companies, essentially for debt repayment.
It was reported that in the first 10 months of this year, the actual scale of local governments “borrowing new to repay old” amounted to approximately 5.65 trillion yuan, comprising the sum of refinancing bonds and special additional project bonds and accounting for about 62% of the total amount of local government bond issuance in the first 10 months.
Furthermore, the Ministry of Finance and National Development and Reform Commission recently announced that in mid-October, local governments were allowed to issue an additional 500 billion yuan in bonds, with 300 billion yuan designated to bolster local government financial strength to support the resolution of existing government investment debt and clear government arrears owed to companies. The remaining 200 billion yuan is allocated to support project construction in economically strong provinces meeting specific criteria. Market expectations are that this 500 billion yuan policy will be implemented in November and December this year.
Data from the Ministry of Finance shows that as of the end of 2024, the total government debt balance in China amounted to 92.6 trillion yuan (including statutory debt and hidden debt). This includes a national debt balance of 34.6 trillion yuan, a local government statutory debt balance of 47.5 trillion yuan, and a local government hidden debt balance of 10.5 trillion yuan.
However, official Chinese data often conceals unfavorable situations, and the actual data could be even worse.
As early as August 2023, Goldman Sachs estimated that local government debt had accumulated to as high as 94 trillion yuan, including debts from local government financing platforms, which are liabilities off the balance sheet.