(Yicai) March 30 -- China’s local debt cleanup is moving faster, with the central government’s debt swap program steadily replacing hidden liabilities with longer-maturity official bonds, simultaneously lowering borrowing costs and shrinking the implicit debt pile.

Localities have sold about CNY960 billion (USD139 billion) of refinancing bonds to replace hidden debt so far this year, according to data from the Enterprise Early Warning platform. That is nearly half of this year's CNY2 trillion (USD289.4 billion) quota.

As they issued CNY3.1 trillion worth last year, their total hidden debt likely dropped to CNY7.4 trillion as of Dec. 31, said Luo Zhiheng, chief economist at Yuekai Securities. If the use of local finances to swap out implicit debt is also taken into account, the reduction will be even greater, Luo added.

Hidden debt -- local government borrowing not recorded on official balance sheets -- shrank to CNY10.5 trillion (USD1.52 trillion) at the end of 2024 from CNY14.3 trillion at the end of 2023, according to finance ministry figures.

Swapping hidden debt for government bonds also lengthens repayment maturities, easing near-term fiscal pressure on local authorities.

The average maturity of local government bonds was 10.5 years in 2025, while the special-purpose bonds used for hidden debt swaps had an average tenor of 19.8 years, Luo noted. By issuing government bonds with longer redemption periods to replace shorter-term hidden debt, risks are mitigated through a “buying time for space” approach, he said.

Once the full CNY2 trillion of 2025 debt swap bonds was issued, local borrowing costs fell by more than 2.5 percentage points on average, per finance ministry data. The ministry expects the five-year program to save roughly CNY600 billion in interest payments.

Those savings are already showing up. The latest budget report from Guangxi Zhuang Autonomous Region, for instance, showed that the sale of refinancing bonds to replace hidden debt saved it over CNY1 billion (USD140 million) last year.

Because local government financing vehicles are the main channel for hidden debt, its rapid reduction is also pushing many of them to transform into ordinary state-owned enterprises, which is meant to stop old debt from being replaced by new concealed borrowing.

The overall risk posed by local debt risk remains safe and manageable. It stood at about CNY54.82 trillion (USD7.93 trillion) at the end of 2025, ministry figures showed, still below the CNY57.99 trillion ceiling approved by the National People’s Congress.

Editor: Futura Costaglione