The Chinese communist regime has issued approximately 4.2 trillion yuan ($585 billion) in local government bonds during the first seven months of this year, with nearly half of that amount being refinancing bonds used to pay off old government debts, according to recent data. The Ministry of Finance, which is under the ruling Chinese Communist Party (CCP), reported that in May alone, 903.6 billion yuan ($126 billion) worth of bonds were issued, marking the highest monthly issuance in the first half of the year.
Public data reveals that out of the total 4.2 trillion yuan ($585 billion) raised through bond issuances, around 2 trillion yuan ($279 billion) was obtained through refinancing bonds used for repaying matured or existing debts. Li Hengqing, a senior accountant and economist at the Institute for Information and Strategic Studies in the United States, highlighted on August 8th that these refinancing bonds were primarily utilized to cover interest payments on debt. It’s worth noting that China’s local government debt reached a staggering 92 trillion yuan ($12.58 trillion) by late 2023.
Yu Yaw-shun, an assistant professor of Finance at Chung Hua University in Taiwan, commented on August 8th that both central and local governments within China have experienced a significant decline in their ability to repay debts. He stated that “external economic and energy expansion” by the CCP has been hindered by Western nations’ actions against China’s finances and as a result, local governments are now relying solely on internal economic circulation.
Regarding new bond issuances this year totaling 2.2 trillion yuan ($307 billion), approximately 1.8 trillion yuan ($251 billion) are classified as new special bonds while another 0.4 trillion yuan ($55.7 billion) are categorized as new general bonds. Data indicates that funds from these special bonds were primarily invested in municipal and industrial park infrastructure (accounting for about one-third), followed by transportation infrastructure such as railways and toll roads (accounting for about one-fifth).
Yu further explained that due to limited external investments and declining foreign involvement within China’s economy since last year until now (2022-2024), there has been an increased emphasis on building physical infrastructure using materials like cement and steel beams instead of focusing on industries like AI or semiconductors which have faced obstacles from Western countries.
The International Monetary Fund has labeled Local Government Financing Vehicles (LGFVs) as problematic entities within China’s financial system due to their high levels of debt held by them—estimated at around 66 trillion yuan ($9.1 trillion). While most LGFV debt is rolled over through borrowing new debt principal repayment remains an ongoing challenge.
This situation has led international financial agencies to reassess their views on China’s debt situation—a development seen as detrimental to the Chinese regime according to Yu Yaw-shun who also noted how companies like Foxconn have relocated their operations outside China due to concerns over investment risks.
Li Hengqing warned about how excessive government debt coupled with bond issuances have created liquidity issues for Chinese banks leading them into a potential crisis—a cycle he believes will eventually lead towards collapse if not addressed soon enough.
