In the first quarter of this year, the net financing amount of Chinese local government financing platforms was 95 billion RMB, which is the lowest level for the same period since Fitch Ratings began tracking this data in 2021.
According to the latest data from Fitch Ratings, in the first quarter of this year, the quarterly net financing amount of Chinese local government financing platforms (new bonds minus expiring bonds) dropped to 95 billion RMB, reaching the lowest level for the same period since Fitch Ratings started tracking this data in 2021. However, it continued the positive growth trend from the fourth quarter of 2024 and did not return to the negative growth seen in the second and third quarters of 2024.
An analysis by Bloomberg on Wednesday (April 9) pointed out that as the first quarter is often the busiest period in the Chinese debt market, with borrowing concentrated at the beginning of the year, this number highlights the long-term downward trend of local financing platforms.
Local financing platforms, initiated by local governments through the allocation of assets such as land, equity, fees, and national debt, quickly package a company with assets and cash flow that meet financing standards, sometimes supplemented with fiscal subsidies as repayment commitments, to attract various funds for use in urban construction, public utilities, and other projects.
These debts are not officially included in the local government’s formal debts and are often referred to as “hidden debts.”
Chinese Finance Minister Lan Fo’an stated at the 12th meeting of the 14th National People’s Congress Standing Committee in November 2024 that the national balance of hidden debts was 14.3 trillion RMB. However, according to a report cited by Reuters from the International Monetary Fund, it was estimated that by the end of 2023, the debt of Chinese local government financing platforms was 60 trillion RMB, accounting for 47.6% of the Gross Domestic Product (GDP).
Radio Free Asia reported on November 8, 2024, that by the end of 2022, the scale of hidden debts of local financing platforms was approximately 5.42 trillion RMB, with bond issuances accounting for 30%, bank borrowings 60%, and the rest being non-standard debts.
To address the issue of hidden debts, Lan Fo’an announced that while resolving the existing debt risks, there must be a resolute containment of new hidden debts, maintaining a high-pressure regulatory stance of “zero tolerance” towards hidden debts.
In November 2024, Lan Fo’an stated that starting from 2024, China would allocate 800 billion RMB annually for five consecutive years from newly added local government special funds, totaling 4 trillion RMB for the substitution of “hidden debts.” In addition to the 6 trillion RMB in newly approved debt limits by the National People’s Congress, a total of 10 trillion RMB in local debt resources will be added.
According to Enterprise Early Warning Data, as of March 21, the scale of special bonds for refinancing used to repay local government debts was nearly 1.4 trillion RMB, on top of the 2 trillion RMB of special refinancing bonds issued in November and December last year, bringing the total scale of special refinancing bonds to nearly 3.4 trillion RMB. These bonds are mainly used to replace hidden debts.