China has stepped up its campaign against hidden local government debt by publicly naming officials and agencies accused of creating new liabilities or falsely reporting progress in reducing existing debt.
The Ministry of Finance and the Central Commission for Discipline Inspection jointly released six cases spanning six provinces earlier this month. The move is unusual because the country’s top anti-graft watchdog joined the finance ministry in publicly disclosing the cases.
The cases include allegations that local authorities created new hidden debt, failed to meet debt-reduction targets and overstated the amount of debt they had resolved. In one case in Sichuan, a former local official was accused of approving measures that created nearly 3.8 billion yuan in new hidden debt. In Guizhou, a former party official was criticised after the city completed only 20% of its 2024 hidden-debt reduction target.
Other cases involved local governments using funds intended for debt repayment for routine expenses or reporting liabilities as settled when they had not actually been repaid. Authorities said the disclosures were intended to strengthen accountability and deter officials from adding new hidden liabilities.
The campaign comes as Beijing attempts to bring years of off-balance-sheet borrowing by local governments and their financing vehicles under tighter control. Officially recognised hidden local government debt has declined substantially following a large-scale debt-swap programme, which has shifted some liabilities onto local government balance sheets.
However, the broader debt problem remains significant. Local government financing vehicles, or LGFVs, still carry substantial operational liabilities that are not necessarily classified as official government debt. Analysts and financial researchers have warned that some LGFVs face difficulties servicing interest payments even after refinancing has reduced borrowing costs.
The public naming of officials therefore represents another layer of Beijing’s debt-control strategy: alongside financial restructuring, authorities are using disciplinary measures to discourage local governments from accumulating new liabilities or misrepresenting their progress.
Whether the approach can fully resolve the problem will depend on how effectively local governments can reduce debt while maintaining essential spending and economic activity.
