98% of 6 Trillion Yuan Local Government Bond Swap Issued; Focus Shifts to Operating Debt of Financing Platforms

September 24 (Cailianshe, Editor: Yang Bin) — The allocation of resources to replace local government隐性 debt is entering its final phase.

According to statistics from third-party channels compiled by Cailianshe, the issuance progress of the three-year total of 6 trillion yuan in replacement bonds has reached 98%, with most provinces and regions having essentially fully utilized their allocated quotas. As the officially recognized scale of hidden debt has been significantly reduced and debt resolution resources taper off, the first half of this large-scale debt resolution cycle is nearing its end. Market attention is now shifting toward the resolution of operational debt held by financing platforms.

6 Trillion Yuan in Replacement Bonds 98% Issued

According to the latest data from Enterprise Early Warning (企业预警通), 1.88 trillion yuan in refinancing bonds (referred to as "replacement bonds") for replacing hidden debt have been issued this year, accounting for 95% of the 2 trillion yuan annual quota. Eight regions, including Jiangsu and Sichuan, have completed 100% of their replacement bond issuance for the year. Among the 31 provinces or cities with independent planning status that have issued replacement bonds, 23 have completed over 90% of their annual issuance quotas.

This round of large-scale debt resolution began in 2024. On November 8 of that year, the 14th National People's Congress Standing Committee approved the "6+4+2" package of debt resolution measures, with three core components. The largest component allocates 2 trillion yuan in local government debt quotas each year from 2024 to 2026 to replace existing hidden debt, totaling 6 trillion yuan over three years. Based on the 6 trillion yuan total, the issuance of replacement bonds has now reached 98%.

According to official data released by the 14th NPC Standing Committee, the scale of hidden debt under the government's accounting framework stood at 14.3 trillion yuan as of the end of 2023. In addition to replacement bonds, the other two debt resolution arrangements are:

• 4 trillion yuan allocated from new special-purpose bonds for debt resolution from 2024 to 2028 (800 billion yuan per year, referred to as "special new special-purpose bonds")
• 2 trillion yuan in hidden debt related to shantytown renovation, due after 2029, to be repaid according to original contracts

After the implementation of these three debt resolution resources, the Ministry of Finance plans to reduce the total hidden debt that local governments need to resolve before 2028 from 14.3 trillion yuan to 2.3 trillion yuan.

Pace of Debt Reduction

Looking further at the pace of this debt resolution cycle, Finance Minister Lan Fo'an stated in September 2025 that by the end of 2024, the scale of local government hidden debt stood at 10.5 trillion yuan. In August of this year, the Ministry of Finance reported to the NPC Standing Committee in the "Report on Government Debt Management for 2025" that by the end of 2025, the outstanding balance of local government hidden debt was 6.5 trillion yuan.

Based on the average annual reduction over the past two years, a recent research report by Zhang Xu, Chief Fixed Income Analyst at Everbright Securities, estimates that by the end of 2026, the hidden debt balance may be only about 2.6 trillion yuan.

The Huatai Securities fixed income research team believes that the officially recognized "hidden debt" clearance is nearing completion, with limited remaining pressure for resolution. For the small amount of remaining hidden debt, local governments have sufficient capacity to manage it, whether by utilizing part of their quota headroom or through new special-purpose bond quotas.

With the 6 trillion yuan in replacement bonds nearing full issuance, Xu Liang, Chief Fixed Income Analyst at Guolian Minsheng Securities, also noted that the tapering of replacement bonds next year will have a limited impact on achieving the goal of resolving existing hidden debt. While the annual debt resolution scale trackable through bond issuance consists of three components—"replacement bonds + special new special-purpose bonds + debt resolution using unused quotas"—the Ministry of Finance's accounting indicates that actual debt resolution progress is faster than what bond issuance data suggests.

Next Phase: Operational Debt

As the scale of local government hidden debt is significantly compressed, most analysts point to the next focus of debt resolution: operational debt of financing platforms.

Zhang Xu believes that the baton of local debt risk is being passed from hidden debt to the operational debt of financing platforms. As debt resolution resources taper off, policy space should be reserved for handling existing operational debt, so as to minimize the cost of resolving local debt risks.

PBOC Governor Pan Gongsheng disclosed in March 2025 that by the end of 2024, the scale of operational financial debt of financing platforms was approximately 14.8 trillion yuan, down about 25% from the beginning of 2023. In October 2025, the PBOC again revealed that by the end of September 2025, this scale had fallen 62% from the end of March 2023.

The Central Economic Work Conference held in December 2025, for the first time at the central government level, explicitly called for "optimizing debt restructuring and replacement methods, and adopting multiple measures to resolve the operational debt risks of local government financing platforms."

According to research by China Chengxin Credit Rating (中证鹏元), the second half of the debt resolution cycle will focus on three areas:

• Resolving operational debt risks of financing platforms
• Establishing a more comprehensive long-term government debt management mechanism
• Promoting credit restructuring of urban investment companies to accelerate their transformation

Regarding operational debt, the Huatai Securities fixed income research team estimates that the remaining scale is between 3 and 5 trillion yuan. The reduction of this operational financial debt will primarily be achieved through measures such as negotiating platform exits from official lists and financial institution support for debt restructuring, rather than through complete debt clearance.