China's Local Government Bond Issuance Tops RMB 5.5 Trillion in H1 as Fiscal Tools Take Center Stage
In the first half of 2025, China's local governments issued a total of RMB 5.49 trillion (approx. USD 770 billion) in bonds, reflecting an increasingly active fiscal stance amid efforts to stabilize growth and manage long-term structural challenges. With ultra-low rates and extended maturities, this wave of issuance underscores how subnational borrowing is being optimized to balance refinancing needs and strategic investment priorities.
Anatomy of the Issuance
According to China's Ministry of Finance, H1 2025 saw:
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RMB 2.61 trillion in new bonds, including
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RMB 452 billion in general-purpose bonds
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RMB 2.16 trillion in special-purpose bonds
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RMB 2.88 trillion in refinancing bonds, aimed at easing short-term debt pressures
In June alone, issuance reached RMB 1.17 trillion. The average maturity of these bonds extended to 15.9 years, with an average interest rate of just 1.92%. These long durations at low cost reflect not only accommodative monetary policy but also strategic debt management. By end-June, outstanding local government debt had reached RMB 51.95 trillion—nearly 90% of the full-year quota.
Targeted Spending: Infrastructure, Banks, and Households
TWO
While infrastructure remains a key focus, this fiscal cycle leans toward broader development goals:
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RMB 6.58 billion in ultra-long-term treasury bonds has been allocated to projects under the “two new and two heavy” framework—covering digital infrastructure, urban upgrades, and water systems.
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A RMB 5 billion capital infusion into four major state-owned banks aims to strengthen their lending capacity, particularly to SMEs and the real economy.
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Additional funds were directed toward public pensions, education, healthcare, and disaster response. Notably, funds were quickly deployed to address natural disasters in Tibet, Sichuan, and Guizhou.
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Consumer stimulus was introduced via RMB 162 billion in subsidies for “old-for-new” replacements of durable goods, seeking to invigorate household spending.
At the same time, RMB 2.73 trillion in central transfer payments helped ease regional fiscal imbalances, particularly in less developed areas.
THREE
For investors, advisors, and institutions engaged with China's financial system, several signals emerge:
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Refinancing intensity is high, indicating a proactive but fragile balancing act between long-term liability smoothing and short-term cash flow demands.
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The narrowing headroom under the annual debt cap could constrain future stimulus unless quotas are revised or spending reprioritized.
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The structure and use of special-purpose bonds—increasingly tied to bankable infrastructure—may open the door for PPP structuring, legal advisory, and ESG-compliant capital participation by foreign entities.
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Despite relatively low yields, local government bonds may appeal to RMB-focused funds, particularly those seeking duration or hedging against CNY-based liabilities.
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