China Allocates $585 Billion in Local Government Bonds to Settle Debts

The Chinese communist regime issued approximately 4.2 trillion yuan ($585 billion) in local government bonds during the first 7 months of this year. Nearly half of these bonds were refinancing bonds used to repay previous government debts, according to the most recent data available.

Data from the Chinese Communist Party’s Ministry of Finance shows that in May alone, 903.6 billion yuan ($126 billion) in bonds were issued—the highest amount issued in a single month during the first half of the year.

Public data reveals that out of the total 4.2 trillion yuan ($585 billion) in bonds, approximately 2 trillion yuan ($279 billion) was raised through the issuance of refinancing bonds, specifically used to repay matured or existing debts.

Li Hengqing, a senior accountant and economist at the Institute for Information and Strategic Studies in the United States, highlighted on Aug. 8 that the 2 trillion yuan ($279 billion) raised through refinancing bonds was primarily utilized to repay the interest accrued on the debt. As of late 2023, China’s local government debt had reached 92 trillion yuan ($12.58 trillion).

“Repaying the interest alone costs more than 4 trillion yuan ($557 billion) annually; they lack the funds to repay the principal,” Li stated.

“This situation is due to the insufficient ability of local governments to meet their debt obligations. From the central government of the CCP to local governments, their debt repayment capacity has significantly decreased,” Yu Yaw-shun, assistant professor of Finance at Chung Hua University in Taiwan, informed The Epoch Times on Aug. 8. The CCP is essentially “borrowing new debt to pay off old debt.”

“[The CCP’s] external economic and energy expansion has been impeded by the Western world, resulting in notable effects on the CCP’s finances. Consequently, local governments can only rely on internal economic circulation,” he remarked.

Out of the 2.2 trillion yuan ($307 billion) in new bonds issued, 1.8 trillion yuan ($251 billion) were new special bonds and 0.4 trillion yuan ($55.7 billion) were new general bonds. The funds from the new special bonds were primarily allocated to municipal and industrial park infrastructure, totaling approximately 34%. This was followed by investments in transportation infrastructure such as railways, government toll roads, and rail transit, accounting for 20% of the new bond funds, according to data.

Special bond funds utilized in the infrastructure sector during the first seven months of the year amounted to 68.2% of the total, reflecting a 5.1 percentage point increase compared to the previous year.

Regarding the high percentage of local infrastructure investment by the CCP, Yu explained: “From 2022 to last year 2024, they have only focused on state advancement and the decline of the private sector, with foreign investments gradually diminishing. Hence, the CCP now heavily relies on infrastructure development involving cement, bridges, and steel beams due to limitations in its AI and semiconductor industries caused by restrictions from Western countries.”

Yu outlined the challenges faced by coastal provinces in maintaining economic growth rates, and emphasized that reliance on investments from coastal provinces into inland provinces to support internal circulation has posed significant difficulties.

As per the CCP’s budget report for this year, experts predict a significant increase in the issuance of local government bonds between August and October, reaching a peak for the year.

Huge Hidden Debt on LGFVs

Data from the CCP’s Ministry of Finance indicate that as of the end of December 2023, local government debt stood at 40 trillion yuan ($5.57 trillion). However, Goldman Sachs estimated in August 2023 that local governments’ accumulated debt was as high as 94 trillion yuan ($13 trillion), which includes debts from local government financing vehicles (LGFVs), an off-balance sheet liability.

LGFVs are widely regarded as a serious issue within China’s financial system. The International Monetary Fund reported that China’s total debt held by LGFVs surged from 57 trillion yuan ($7.9 trillion) in 2022 to 66 trillion yuan ($9.1 trillion) in 2023. While the principal debt on LGFVs is typically rolled over by borrowing new debt, the interest on the debt must be repaid.

Yu highlighted that the international financial community’s assessment of China’s debt poses a significant challenge to the Chinese regime. “The increase in refinancing debt and debt turnover have escalated certain risks. Western countries are reluctant to continue investing, leading to the gradual disappearance of China’s status as the world’s factory. Taiwanese, Japanese, and other foreign companies are gradually withdrawing from the country,” he noted.

Yu cited the example of Foxconn, the Taiwanese Apple supplier, moving its iPhone production out of China to other countries, signifying a shift in operations away from China.

“With the central government’s financial power waning, local governments face significant challenges in acquiring funds,” Yu emphasized.

Li pointed out that the extensive government debt and bond issuances by the CCP have put Chinese banks at risk of a debt crisis due to reduced liquidity, creating a vicious cycle. “This cycle has been ongoing for years, but the crisis has now become critical, edging closer to a complete collapse,” Li warned.

Luo Ya and Reuters contributed to this report.