In a recent disclosure, China’s Ministry of Finance, under the ruling Chinese Communist Party (CCP), has revealed alarming figures concerning local government debts. According to data released on January 30, outstanding local government debts in China surged to a record high, reaching a staggering 40.74 trillion yuan ($5.71 trillion) by the end of 2023.
The report highlights a significant year-on-year increase of 27 percent, with local governments nationwide issuing 9.34 trillion yuan ($1.31 trillion) worth of new bonds in 2023. This marks a substantial uptick, with the scale of local borrowing surpassing the previous year by nearly 2 trillion yuan ($280.8 billion).
December 2023 alone witnessed local government bond issuance hitting 195.6 billion yuan ($27.5 billion), underlining the rapid escalation of debt accumulation.
As local government debts soar, so do bond interest payments. The Ministry of Finance data reveals that interest payments on local government bonds in 2023 amounted to 1,228.8 billion yuan ($172.5 billion), reaching the highest level since 2015. This reflects a 9.6 percent increase compared to the previous year, as reported by Caixin.com, a prominent Chinese finance media outlet.
Local government bonds are categorized into new bonds, primarily allocated for major infrastructure projects, and refinancing bonds, utilized to repay maturing local government bonds or existing debts. This approach effectively involves borrowing new debts to settle old ones.
Since the implementation of the CCP’s new “Budget Law” in 2015, local government bonds have become the sole legal avenue for local governments to borrow funds. The latest data ranks Guangdong as the leading province in bond issuance for 2023, followed closely by Shandong, Hunan, Jiangsu, and Zhejiang.
Henry Wu, a macroeconomist in Taiwan, has raised concerns about China’s economic model, pointing to a debt crisis as a core issue. He emphasized that China’s economic development is heavily reliant on debt, a situation that has led to financial crises, fiscal challenges, and employment concerns.
Notably, the disclosed numbers only represent the explicit debts officially recognized by China’s local governments. Experts warn of the larger issue of implicit debts, primarily concentrated in local government investment and financing platform companies. According to Chinese finance media Yicai, the lack of clarity on the base number of these implicit debts raises concerns, with governments at various levels potentially deceiving one another, making it challenging to ascertain the true extent of the financial situation. Wang He, an expert on China affairs and columnist for The Epoch Times, emphasized the opacity surrounding local implicit debts as a significant concern, stating that the real numbers remain elusive due to a lack of transparency within the CCP’s governance.