(Yicai) March 30 -- China's local governments have already issued nearly half of this year's CNY2 trillion (USD289.6 billion) quota for refinancing bonds to replace existing hidden liabilities.

Local governments have issued about CNY960 billion (USD139 billion) in refinancing bonds this year as of today, according to data from corporate risk intelligence monitoring platform Enterprise Early Warning.

Chinese local governments' hidden debt balance shrank to CNY10.5 trillion (USD1.52 trillion) at the end of 2024 from CNY14.3 trillion at the end of 2023, according to data from the Ministry of Finance.

As local governments issued CNY3.1 trillion refinancing bonds to replace existing hidden debts last year, their total hidden debt balance likely dropped to CNY7.4 trillion as of Dec. 31, said Luo Zhiheng, chief economist at Yuekai Securities. Counting also the repayment through local governments' own resources, the reduction was even greater, he added.

Converting local government hidden debts into bonds also extends the repayment period, alleviating the debt repayment pressure on local governments.

The average maturity of local government bonds nationwide was 10.5 years in 2025, while that of refinancing bonds was 19.8 years, Luo noted. By issuing government bonds with longer maturities to replace shorter-term hidden debts, risks are mitigated by trading time for space, he added.

After the issuance of CNY2 trillion in local government refinancing bonds last year, the average interest of debts across various Chinese regions decreased by more than 2.5 percentage points, according to MOF data. In 2024, the MOF predicted that a comprehensive debt relief plan could save about CNY600 billion (USD86.8 billion) in interest over the following five years.

Some regions have already experienced a reduction in interest expenditures. For example, the latest budget report of Guangxi Zhuang Autonomous Region showed that the issuance of refinancing bonds to replace hidden debts has saved the provincial-level region over CNY1 billion (USD140 million) in interest last year.

Local government financing platform companies are the main entities responsible for hidden debts. With the rapid reduction of the hidden debt balance, many of them are transforming into ordinary state-owned enterprises, as they are no longer taking on government financing functions. This will curb the generation of new hidden debts.

The overall risk of local government debt is considered safe and controllable. MOF data showed that local government debt balance was about CNY54.82 trillion (USD7.93 trillion) at the end of last year, staying below the CNY57.99 trillion limit approved by the National People's Congress.

Editor: Futura Costaglione