6 Trillion Yuan Swap Bond Issuance 98% Complete, Focus Shifts to Operating Debt

September 24 (Cai Lian She) — The allocation of resources to replace local government隐性债务 (hidden debt) is entering its final phase.

According to third-party channel statistics compiled by Cai Lian She, the issuance progress of the three-year, total 6 trillion yuan 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 operating debt held by financing platforms.

6 Trillion Yuan 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 2025 replacement bond issuance. 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 large-scale debt resolution initiative 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 of these is the allocation of 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 this 6 trillion yuan target, 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 (so-called "special new special-purpose bonds") from 2024 to 2028, at 800 billion yuan per year.
• 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 at the pace of this debt resolution cycle:

• 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).
• By the end of 2025, the outstanding balance of local government hidden debt had fallen to 6.5 trillion yuan (as reported by the Ministry of Finance 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 by the end of 2026 may be only about 2.6 trillion yuan.

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 their quota space or through new special-purpose bond quotas.

As the 6 trillion yuan in replacement bonds approaches 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 actual pace of debt resolution, according to the Ministry of Finance's口径 (accounting framework), 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 key focus: the operating debt of financing platforms.

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

PBOC Governor Pan Gongsheng disclosed in March 2025 that the scale of operating financial debt held by financing platforms at the end of 2024 was approximately 14.8 trillion yuan, 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 from China Chengxin Credit Rating (中证鹏元), 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 management mechanism for government debt.
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 primary methods for reducing this operating financial debt include negotiating platform delisting and financial institution support for debt restructuring, rather than achieving complete debt clearance.