At the 2026 Tsinghua PBC School of Finance Chief Economists Forum on September 19, several prominent Chinese economists said local government debt has become a more urgent economic problem than the real estate sector and called for more expansionary fiscal and monetary policies. During a roundtable on macroeconomic policy and global rebalancing, economists including Lin Yifu of Peking University, Yao Yang of Shanghai University of Finance and Economics, Li Xunlei of Zhongtai International, and Ju Jiandong of Tsinghua University’s PBC School of Finance said the central government should issue more debt to replace local government debt.
Ju said that faster and larger central government bond issuance to replace local debt has become an important tool for supporting economic growth. Li said local governments face heavy debt and arrears pressures, with a 2027 deadline for clearing outstanding payments, making debt replacement an urgent priority. Yao said local government debt is currently China’s biggest economic problem and is more serious than the property market. He estimated that a chain of interconnected debts arising from local government debt has reached about RMB 30 trillion. Both Yao and Lin called for the government to address the problem with the same level of determination used to resolve China’s banking-sector bad loans around 2000.
At that time, the Ministry of Finance issued special government bonds to recapitalize the four major state-owned banks and established four asset-management companies to absorb their non-performing loans. Lin argued that much of today’s local government debt was incurred in support of central government fiscal policies. Because the borrowing ultimately involves banks, he said that if local governments cannot repay, the losses could eventually fall on the banking system and the Ministry of Finance, making debt replacement the preferred approach.
Source: 21st Century Business Herald, September 20, 2026
https://www.21jingji.com/article/20260920/herald/c9d4680a5be88c901027977f013cb3a2.html