(Yicai) April 23 -- China’s push to ease local fiscal pressure by encouraging eligible governments to repay debt early has expanded from the provincial level to prefecture-level cities, with Baoji in Shaanxi becoming the first such city to complete the early repayment of special bonds.

The move matters because it shows local authorities are exploring market-based ways to lower financing costs and manage debt risks. Baoji repaid two special bonds with a combined principal of CNY85 million (USD12.4 million), according to a recent announcement by the city’s finance bureau.

The two bonds were issued in 2022 and 2023, carried coupon rates of about 3.3 percent, and were originally due to mature in 2042 and 2043, with principal to be repaid in a lump sum at maturity. The funds raised were used for the renovation and upgrade of a local wastewater treatment plant.

The early repayment was completed through an open tender, with the final redemption price set at CNY97.6 million, cutting interest expenses by CNY33.2 million, the finance bureau said. It added that the repayment funds came entirely from proceeds generated by the early disposal of project assets, helping revitalize existing assets while proactively reducing debt costs.

Baoji’s market-oriented approach provides a useful example for other local governments considering early repayment, Wen Laicheng, a professor at Central University of Finance and Economics, told Yicai. The city’s decision to repay debt ahead of schedule based on proceeds from early asset disposal can ease debt pressure to some extent, create room for future development, and help prevent debt risks, he said.

China’s finance ministry said in the local-government bond issuance management measures released in 2020 that local finance departments may repay principal early based on actual conditions, provided creditors’ lawful rights and interests are protected. Before Baoji, only Beijing and the Shaanxi provincial government had tried early debt repayment.

Since 2023, Beijing has carried out early debt repayment three times, repaying about CNY5.2 billion (USD761.1 million) of special-bond principal. Shaanxi repaid CNY90 million of special-bond principal ahead of schedule in September last year, saving about CNY6.5 million (USD952,410) in interest.

Holders of government bonds are usually banks and other financial institutions. Early repayment allows them to lock in returns sooner and reallocate recovered principal into other assets, improving capital efficiency, Hu Hengsong, general manager of Caida Securities, told Yicai earlier.

As of the end of February, China’s local-government debt balance stood at about CNY56.6 trillion (USD8.3 trillion), with an average remaining maturity of 10.6 years and an average interest rate of 2.81 percent, according to finance ministry data.

Editors: Dou Shicong, Emmi Laine