(Yicai) Dec. 5 -- Local governments in China have already issued or are planning to issue CNY1.93 trillion (USD265.5 million) of refinancing special bonds to replace existing hidden debt by Dec. 11, little over one month since the central government rolled out a series of policies, including lifting the debt ceiling, to help local governments resolve their hidden debts.

On Nov. 8, local governments were granted an additional CNY2 trillion (USD278.3 billion) in special refinancing bonds for the years 2024, 2025 and 2026. Thus, local governments have already completed 97 percent of this year’s quota in around one month.

"The fact that local governments have basically completed the issuance of CNY2 trillion worth of debt reduction quotas in just one month shows that the new debt reduction policies are being implemented quickly," Wen Laicheng, professor at the Central University of Finance and Economics, told Yicai. "It also reflects that local governments are under great pressure to resolve debts and urgently need this financial support."

Local governments have experienced a slowdown in growth in fiscal revenue in the past few years, largely due to a big drop in land sales resulting from the sluggish real estate market, making it more difficult for them to complete the goal set by the central government of resolving hidden debts by 2028.

The majority of the bonds that have been issued this time have longer terms than usual, at over 10 years and up to 30 years. The interest rates are generally below 2.5 percent.

Jiangsu province has issued the biggest debt repayment quota of the 26 provincial-level regions to have released their quota as of Dec. 4 at CNY251.1 billion (USD34.5 billion). The quotas given by Hunan, Shandong, Henan and Guizhou provinces all exceed CNY100 billion. Guangdong province, Beijing, Shanghai, the Tibet Autonomous Region and the Ningxia Hui Autonomous Region have yet to release their quotas.

Quotas are allocated according to the scale of hidden debt that each provincial-level region has, Wen said. So the larger the amount of hidden debt, the larger the quota.

Beijing, Shanghai and Guangdong province have already achieved zero hidden debt, according to the Ministry of Finance, so these three provincial-level regions are not expected to issue quotas. The other provincial-level regions are disclosing their quotas in batches, so the figures may still change.

The original quota set by the Ministry of Finance to resolve existing debt and clear arrears owed to companies was CNY1.2 trillion (USD165 billion) for this year and mos of this has been used up. Together with the additional CNY2 trillion, the total debt resolution quota for the year is more than CNY3 trillion (USD412.6 billion).

On top of this, the CNY2 trillion of hidden debts resulting from the renovation of rundown areas that are due by in 2029 and subsequent years can be paid according to the original contract, the Ministry of Finance said. This eases repayment pressure on local governments.

Next year, China should pay close attention to the local financial situation after debt reduction, especially the expenditure burden that may still be borne by local governments but is not included in hidden debts, said Luo Zhiheng, chief economist of Yuekai Securities.

The balance of local government hidden debts was CNY14.3 trillion (USD2 trillion) as of the end of 2023, according to the Ministry of Finance. The central government has given local governments five years from 2024 to 2028 to resolve these hidden debts.

Editor: Kim Taylor