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

By YANG Bin, Caixin, September 24

The allocation of resources to replace local government隐性 debt is entering its final phase.

According to third-party channel statistics compiled by Caixin, the issuance progress of the three-year, 6 trillion yuan swap bond program has reached 98%, with most provincial quotas essentially allocated. As the officially recognized scale of hidden debt has been significantly reduced and debt-relief 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 operating debt held by financing platforms.

6 Trillion Yuan Swap Bonds: 98% Issued

According to the latest data from Enterprise Early Warning, 1.88 trillion yuan of refinancing bonds (referred to as "swap 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 swap bond issuance for the year. Among the 31 provinces or cities with independent planning status that have issued swap 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 debt resolution plan, with three core components. The largest component allocates 2 trillion yuan of 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 swap 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 definition stood at 14.3 trillion yuan as of the end of 2023. In addition to swap 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, known as "special new special-purpose bonds")
• 2 trillion yuan of 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 from 14.3 trillion yuan to 2.3 trillion yuan by 2028.

Pace of Debt Reduction

Looking at the pace of this round of debt resolution:

• As of the end of 2024, the scale of local government hidden debt stood at 10.5 trillion yuan (as stated by Finance Minister LAN Fo'an in September 2025)
• As of the end of 2025, the outstanding balance of local government hidden debt was 6.5 trillion yuan (according to the Ministry of Finance's report to the NPC Standing Committee in August 2025)

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 the hidden debt balance may fall to approximately 2.6 trillion yuan by the end of 2026.

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

As the 6 trillion yuan swap bond program nears completion, XU Liang, Chief Fixed Income Analyst at Guolian Minsheng Securities, also noted that the tapering of swap bonds next year will have a limited impact on achieving the goal of resolving existing hidden debt. While the annual debt-resolution scale tracked through bond issuance consists of "swap bonds + special new special-purpose bonds + bonds using unused quotas," the Ministry of Finance's definition indicates that actual debt resolution progress is faster than what bond issuance data suggests.

Next Phase: Focus on Operating Debt

With the significant reduction in local government hidden debt, most analysts point to the next priority: resolving the operating debt of financing platforms.

ZHANG Xu argues that the baton of local debt risk is being passed from hidden debt to financing platform operating debt. As debt-resolution resources taper off, policy space should be reserved for handling existing operating debt, minimizing the cost of resolving local debt risks.

People's Bank of China Governor PAN Gongsheng disclosed in March 2025 that the scale of operating financial debt held by financing platforms stood at approximately 14.8 trillion yuan at the end of 2024, down about 25% from early 2023. In October 2025, the PBOC further revealed that by the end of September 2025, this scale had fallen by 62% compared to 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 operating debt risks of local government financing platforms."

According to research by China Chengxin Credit Rating, the second half of the debt-resolution cycle will focus on three areas:

1. Resolving operating debt risks of financing platforms
2. Establishing a more comprehensive long-term government debt management mechanism
3. Promoting credit restructuring of urban investment companies to accelerate their transformation

Regarding operating debt, the Huatai Securities fixed income research team estimates that the remaining scale is between 3 and 5 trillion yuan. The reduction of this operating 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 a complete debt clearance.