You Zhipei, an analyst from Zhongtai International Securities, noted that “over 10% of the land offered for auction had no bidders.” It is estimated that in 2025, the value of land sales will be around 3 trillion yuan, significantly lower than the peak of over 5 trillion yuan.
Another reason for the increased issuance of bonds by local governments is hidden debt, referring to loans raised through subsidiary companies or LGFVs, such as the issuance of corporate bonds by development companies that are owned by local governments.
According to DZH, a Chinese data service provider, by the end of last year, the interest-bearing debt of around 4,000 LGFVs amounted to 87 trillion yuan. When combined with the 47 trillion yuan in local bonds, the total debt reached 134 trillion yuan.
The International Monetary Fund (IMF) estimates that LGFV debt reached 65 trillion yuan in 2024. While there is some variation in these figures, it is generally estimated that the off-budget debt of local governments is between 60 and 80 trillion yuan.
Although companies could survive if profitable, most LGFVs have very low returns—almost 10% at a loss—and only 3% have returns above 4%.
By the end of 2024, the combined profits of LGFVs across the country are estimated to be about 550 billion yuan, but when looked at more closely, it becomes clear that they rely on “more than 1 trillion yuan in state subsidies” to make the numbers look better. This means that without these subsidies, nearly half of the LGFVs would be in “actual loss” since most of their projects are low-profit infrastructure ventures, making it difficult to raise funds to service their debts.
Despite the overwhelming debt, LGFVs are still surviving because the government “implicitly guarantees” them, and they benefit from low interest rates due to the economic stagnation. Under President Xi Jinping’s leadership, the government decided to issue an additional 10 trillion yuan in local bonds last year to move LGFV debt onto local government budgets instead. The goal is to prevent these debt problems from spiraling into a financial crisis.