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Emma Ma

A recently issued official circular has put China’s long-running problem with hidden local government debt back in the spotlight.
Earlier this month, the Ministry of Finance (MoF) and the Central Commission for Discipline Inspection (CCDI) jointly outlined six typical cases spanning six provinces where local authorities had fallen short of targets to resolve unrecorded liabilities.
“For hidden-debt penalty announcements, it is unprecedented to have the CCDI alongside the MoF,” said Qiao Yide, vice-chairman of the Shanghai Development Research Foundation think tank.
“Previously, the MoF alone would issue these case notifications. Bringing in the party’s highest internal disciplinary body sends a sobering reminder to fiscal officials,” Qiao added.
The first case concerned Bijie in southwestern China’s Guizhou province. The circular departed from past practice by naming Wu Shenghua, the city’s former Communist Party secretary, in full. Earlier documents typically disclosed only officials’ surnames.
According to the circular, Wu had “failed to take effective actions on debt-resolution efforts” between 2022 and 2025. It also said he had made contentious remarks at multiple public gatherings, including the comment: “These debts were run up by previous administrations. Why should I have to pay them back?”
Excluding government subsidies, more than 2,100 LGFVs we tracked all posted losses and their earnings capacity is eroding
Luo Zhiheng, Yuekai Securities
The other five cases in the circular concerned local officials who were faulted for sluggish progress in repaying debt or for irregularly taking on new off-book borrowings.
“The revelation of specific cases of breach with official names suggests the government is very determined to resolve the hidden debt issue. This comes at a time when we see a risk that the government may need to deal with new hidden debt,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered.
Ding said declining land-sale revenues had left local governments with spending obligations that could not be fully covered by fiscal revenue. In his assessment, this meant officials were still “incentivised” to borrow outside official budgets, although he expected the amount to be relatively small because of tighter monitoring and disciplinary action.
Official data showed that hidden debt identified by Beijing had reached 14.3 trillion yuan (US$2.13 trillion) at the end of 2023, when the central government pledged to eliminate such liabilities by 2028. Following successive rounds of debt swaps funded through special bonds, this had fallen to 6.5 trillion yuan by the end of 2025.
But the decline in officially identified hidden debt did not mean broader financial risks had disappeared, according to analysts.
Davis Sun, senior director of international public finance at Fitch Ratings, cautioned in a report published on Sunday that China’s 2028 target was “mainly a political and accounting milestone” rather than evidence that most local government financing vehicles (LGFVs) had become financially independent.




LGFVs are companies established by local governments to raise funds and finance projects such as infrastructure, and their borrowing has long been an important source of local government financing. Under China’s official definition, meanwhile, hidden debt refers specifically to certain liabilities that rely on government budget allocations for repayment or carry a formal government guarantee.
However, some LGFV debt that Beijing does not classify as hidden government debt is included in broader measures used by some global institutions, including the International Monetary Fund.
Luo Zhiheng, chief economist at Guangdong-based Yuekai Securities, estimated that total LGFV liabilities nationwide stood at more than 71 trillion yuan – almost 11 times the stock of officially identified hidden debt at the end of last year. Ding at Standard Chartered gave a similar estimate of 73 trillion yuan.
In a research note released in early September, Luo said short-term debt accounted for 27.6 per cent of total LGFV liabilities at the end of 2025, one percentage point higher than a year earlier. He added that their underlying ability to generate cash had “continued to weaken” amid a sluggish property market.
“Excluding government subsidies, more than 2,100 LGFVs we tracked all posted losses and their earnings capacity is eroding,” Luo said. “Their median return on equity stood at 0.8 per cent last year, meaning every 100 yuan (US$14.90) of equity generated less than one yuan in net profit.”
Against this backdrop, Sun of Fitch Ratings suggested that China’s 2028 “no hidden debt” target was unlikely to mark the end of government support for LGFVs.
“China’s current debt-substitution programme has eased near-term refinancing pressure, but does not resolve the sector’s underlying debt-service weakness,” he said in the Sunday report.


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The escalating campaign comes as officially identified hidden debt shrinks, even as broader estimates of local financing vehicle liabilities remain far larger


The escalating campaign comes as officially identified hidden debt shrinks, even as broader estimates of local financing vehicle liabilities remain far larger.


China publicly names officials in ‘unprecedented’ hidden-debt crackdown. Can it work?

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The escalating campaign comes as officially identified hidden debt shrinks, even as broader estimates of local financing vehicle liabilities remain far larger

The escalating campaign comes as officially identified hidden debt shrinks, even as broader estimates of local financing vehicle liabilities remain far larger