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China’s Local Government Debt Soars to $40 Trillion In November; Half of New Issuance is for Refinancing

In the first 11 months of 2023, China’s local governments issued RMB 9.14 trillion (US$1.28 trillion) in bonds, exceeding the RMB 7.4 trillion (US$1.04 trillion) issued throughout all of 2022. Half of the bonds issued this year were used for debt refinancing. The scale of refinancing bonds saw an 82% annual increase to RMB 4.59 trillion (US$643 billion). In contrast, RMB 4.55 trillion (US$637 billion) in new bonds (not for refinancing) were issued, down 4% annually.

Two main factors drove the large increase in refinancing bonds. First, RMB 3.6 trillion (US$504 billion) worth of local government bonds are maturing this year, putting pressure on government finances. Refinancing bonds are helping to repay these old debts. Second, to reduce risk, China’s Ministry of Finance allowed for special refinancing bonds with extended redemption periods. Since October of this year, over 20 provinces/municipalities in China have issued a collective RMB 1.3 trillion (US$182 billion) in these special bonds, far higher than the RMB 200 billion (US$28 billion) issued last year.

By the end of October, 2023, China’s local government debt balance passed RMB 40 trillion (US$5.6 trillion) for the first time ever. This is double the figure from before 2019, when local government debt stood at less than RMB 20 trillion (US$2.8 trillion).

Taiwan’s Central News Agency cited a statement by China’s Ministry of Finance that rapid local debt growth since the pandemic outbreak is related to increased fiscal expansion and local debt scales.

Source: Central News Agency (Taiwan), December 5, 2023