(Yicai) Sept. 24 -- China’s central government should shoulder more of the country’s debt burden to ease the financial strain on local governments and rebalance how debt is shared between central and local authorities, a number of experts said at the “Seminar on Key Issues in China’s Macroeconomy” yesterday.

Local governments currently hold a higher share of debt than the central government, said Liu Shangxi, former director of the Chinese Academy of Fiscal Sciences. This creates more financial risk at the local level, and the structure should be adjusted so the central government gradually takes on a bigger share.

Beijing should moderately increase its own borrowing to ease the debt pressure on local governments, said Sun Xiaoxia, former director of the Ministry of Finance’s Finance Department. At the same time, it is necessary to make sure that borrowed funds are spent effectively, and a two-dimensional performance evaluation system should be put in place to encourage local governments to manage their debt more responsibly.

To address the risks associated with local government implicit debt, China launched a major debt resolution program in the fourth quarter last year. The core measure was issuing CNY10 trillion (USD1.4 trillion) in local government bonds to replace existing hidden debt over the four years from 2024 to 2028, according to the Ministry of Finance. The 2024 debt swap has already been completed, and most of the CNY2.8 trillion planned for 2025 has also been distributed. Altogether, over CNY5 trillion in hidden debt has already been refinanced.

Another CNY1 trillion (USD140billion) in local government bonds should be issued this year to swap out more hidden debt, said Yuan Haixia, director of the research institute at China Chengxin International Credit Rating.

Local fiscal revenue growth is stagnating while liquidity pressure on local finances continues to rise, especially in those regions with significant interest repayments, Yuan said. Issuing additional bonds could help reduce the risks of existing debt and give local governments more breathing room.

Debt does not mature evenly across provincial-level regions, and so refinancing resources should be allocated based on the actual needs of local governments, said Luo Zhiheng, chief economist at Yuekai Securities. It is recommended to optimize debt resolution methods in the short term and further lift the debt ceiling, such as by prioritizing the use of debt quotas, he said.

The government will continue to roll out measures to resolve hidden debt risks, Finance Minister Lan Fo’an said recently. This includes allocating part of the debt quota planned for 2026 in advance, prioritizing the use of debt resolution quotas and adopting multiple approaches to resolve existing hidden debts.

China’s government debt, though, remains under control overall. At the end of 2024, the country’s debt-to-gross domestic product ratio stood at 68.7 percent, well below the G20 nations’ average of 118.2 percent.

The seminar was jointly organized by Renmin University of China’s National Academy of Development and Strategy, the university's School of Economics, and China Chengxin International Credit Rating.

Editor: Kim Taylor