2027 Local Debt Resolution Nears End; 6 Trillion RMB of 12 Trillion Package Issued by 2026
China's local government hidden debt resolution is approaching its final stage in 2027, with the 12 trillion RMB package making faster progress than planned. The 6 trillion RMB swap bond quota, part of the three-year program launched in 2024, was fully issued by 2026. Annual special bond allocations for debt swaps exceeded 8 billion RMB in 2024 and 2025, and the 4 trillion RMB five-year quota is nearly exhausted. Market attention now shifts to how reduced local bond supply will affect debt market structure.
The resolution of local government hidden debt has continued steadily, and after several years of multi-pronged measures, notable progress has been achieved. However, a gap of several hundred billion RMB in hidden debt and several trillion RMB in operating debt remains. As the midpoint of the year passes, the market has begun to focus on issues related to the tail end of the debt resolution cycle in 2027, particularly the impact of changes in local bond supply on the structure of the debt market.
The current debt resolution cycle began in 2024, when the central government introduced a "6+4+2" package. Specifically, it increased the local government debt ceiling by 6 trillion RMB, implemented over three years, to swap existing hidden debt. Starting in 2024, 800 billion RMB per year for five consecutive years was allocated from new local government special bonds, cumulatively allowing for 4 trillion RMB in swaps. In addition, 2 trillion RMB of shantytown renovation hidden debt maturing in 2029 and beyond will continue to be repaid under original contracts. Together, these three measures can resolve 12 trillion RMB of local hidden debt.
In actual implementation, the new special bond quotas used for debt resolution in 2024 and 2025 both exceeded 800 billion RMB, and "special refinancing bonds" were issued in both years, meaning the actual resolution pace has been faster than originally planned. In 2026, the "3-year 6 trillion" swap bonds have been fully issued, and the "5-year 4 trillion" new bond quota is also nearing completion.