(Yicai) April 13 -- A growing number of local governments in China have pledged to eliminate hidden debt this year, while winding down the government financing platforms used as borrowing vehicles for such debt, as the country steps up efforts to reduce local government debt risks.

Both northwestern Shaanxi province and the Xizang Autonomous Region in the southwest have set goals to clear all outstanding hidden debt across their regions this year, according to a report released today by Luo Zhiheng, chief economist at Yuekai Securities, which cites official local documents. Other regions, including northwestern Gansu province and Guangxi Zhuang Autonomous Region in the south of the country, are also prioritizing early clearance in eligible cities and counties.

Hidden debt refers to liabilities incurred by local governments through financing platforms that they control, which are not recorded on fiscal balance sheets and therefore carry significant regulatory risk.

To address this, China rolled out a series of debt resolution measures in 2024, allowing local governments to issue new bonds to replace existing hidden debt. Under these policies, local governments can issue CNY2.8 trillion (USD409.8 billion) in new bonds each year from 2024 to 2026 to swap out existing hidden debt.

So far, CNY1.3 trillion of this year’s quota, or 46 percent, has already been issued, according to data from corporate risk monitoring platform Enterprise Early Warning.

Beijing, Shanghai and southern Guangdong province have already achieved full clearance of hidden debt across their jurisdictions.

China has also required local governments to shut down all government financing platforms by the end of June 2027 to prevent new hidden debt from forming. This year, several provincial-level regions, including the Inner Mongolia Autonomous Region in the north, northeastern Jilin province, central Henan province and eastern Jiangxi province, have set targets to dismantle all such platforms within their jurisdictions, Luo said.

These debt reduction policies have begun to deliver results. As of the end of September last year, the number of government financing platforms nationwide had plunged 71 percent from the end of March 2023 and the scale of their existing debt had slumped 62 percent, according to figures released earlier by the People's Bank of China.

Alongside efforts to reduce debt risks, this year's Government Work Report, for the first time, called for improving debt monitoring and assessment metrics and establishing a unified long-term mechanism for government debt management, Luo said.

After hidden debt is swapped into explicit debt, the reported debt ratios of local governments will rise, he added. In this context, the central government is expected to moderately ease debt assessment criteria to allow local governments to free up funds for productive projects, achieving a balance between risk prevention and promoting development, Luo said.

Editors: Dou Shicong, Kim Taylor