Beijing: China has announced a 6 trillion yuan ($837.7 billion) bond issuance plan over three years, aimed at alleviating the “hidden” debt of local governments through debt swaps. This measure is a critical move to stabilize the economy amidst declining growth, rising debt levels, and deflationary pressures. The National People’s Congress (NPC) raised the debt ceiling for local governments to facilitate these swaps and reduce financial strain on local government financing vehicles (LGFVs). By 2028, the government aims to reduce hidden debt from 14.3 trillion to 2.3 trillion yuan. Interest savings from the swaps are estimated at 600 billion yuan over five years, crucial for revitalizing economic activity and reaching the 5% growth target.
Highlights
# China approves 6 trillion yuan bonds for hidden local debt swaps.
# Local government debt ceiling raised to 35.52 trillion yuan by NPC.
# Debt swaps expected to save 600 billion yuan in interest over five years.
# Goal to cut hidden local debt from 14.3 to 2.3 trillion yuan by 2028.
# Rising local debt challenges China’s 5% economic growth target for 2024.
China has introduced a significant 6 trillion yuan bond issuance program over the next three years, designed to address the growing issue of “hidden” debt within local governments. The bonds will serve as a means to replace off-balance sheet debts, easing financial pressures on local government financing vehicles (LGFVs) heavily indebted from infrastructure investments. These measures come at a crucial time as China’s economy faces challenges, with recent data revealing deflationary pressures and weak domestic demand.
Price pressures have weighed heavily on the economy, reflected in deflationary trends and a downturn in property markets. In response, authorities have increased stimulus measures, such as rate cuts since September, to boost economic recovery and help local governments manage their financial burdens. China’s National People’s Congress (NPC) has also raised the local government debt ceiling from 29.52 trillion to 35.52 trillion yuan, facilitating debt swaps that aim to lessen the long-standing impact of LGFV debts on local budgets.
Additionally, Finance Minister Lan Foan disclosed that the hidden debt held by local governments reached 14.3 trillion yuan by the end of 2023. The government plans to trim this to 2.3 trillion yuan by 2028, with these debt swaps estimated to save 600 billion yuan in interest over five years. However, the ongoing burden of debt has left limited fiscal room to launch new projects, posing a risk to China’s 2024 growth target of 5%. This initiative underscores China’s commitment to stabilizing its economic foundations amid increasing internal and external financial challenges.
China’s bold debt swap plan aims to mitigate local government financial strain, strengthen economic recovery, and achieve its 5% growth target amid mounting fiscal pressures.
