The Chinese communist regime issued about 4.2 trillion yuan ($585 billion) in local government bonds in the first 7 months of this year, nearly half of which were refinancing bonds used to pay old government debts, the latest data show.
According to the ruling Chinese Communist Party’s (CCP’s) Ministry of Finance’s data, in May alone 903.6 billion yuan ($126 billion) in bonds were issued, the highest in a single month in the first half of the year.
Public data show that of the 4.2 trillion yuan ($585 billion) bonds, about 2 trillion yuan ($279 billion) was raised through the issuance of refinancing bonds, which are used to repay the matured debts or existing debts.
Li Hengqing, a senior accountant and economist at the Institute for Information and Strategic Studies in the United States, pointed out on Aug. 8, that the 2 trillion yuan ($279 billion) refinancing bonds were mainly used for repaying the interest incurred by the debt. China’s local government debt reached 92 trillion yuan ($12.58 trillion) in late 2023.
“Repaying the interest alone costs more than 4 trillion yuan ($557 billion) a year; they have no money to repay the principal,” Li said.
“This is the result of the inadequate ability of local governments to repay debts. From the CCP central government to local governments, their ability to repay debts has plummeted,” Yu Yaw-shun, assistant professor of Finance at Chung Hua University in Taiwan, told The Epoch Times on Aug. 8. The CCP is “borrowing new debt to pay the old [debt].”
“[The CCP’s] external economic and energy expansion has been blocked by the Western world, which has already shown results [on the CCP’s finances]. All local governments can only rely on internal [economic] circulation,” he said.
Of the 2.2 trillion yuan ($307 billion) in new bonds, 1.8 trillion yuan ($251 billion) are new special bonds and 0.4 trillion yuan ($55.7 billion) are new general bonds. The funds from the new special bonds were mainly invested in municipal and industrial park infrastructure, accounting for approximately 34 percent of it—followed by investment in transportation infrastructure such as railways, government toll roads, and rail transit, accounting for 20 percent, according to the data.
In the first seven months of this year, special bond funds issued and used in the infrastructure sector accounted for 68.2 percent of the total, 5.1 percentage points higher than the whole of last year.
As to the CCP’s high percentage of local infrastructure investment, Yu said: “From 2022 to 2024 last year, all they had was the advancement of the state and the retreat of the private sector, and all foreign investments were gradually declining. Therefore, the CCP now all relies on building infrastructure with cement, bridges and steel beams. It’s because its AI and semiconductors industry have been blocked [by the West].”
Yu said that now since the CCP can only rely on internal circulation, “the economic growth rate in most of the coastal provinces are declining. They rely on coastal provinces to invest in inland provinces, so their internal circulation has already encountered big problem.”
According to the CCP’s budget report this year, experts anticipated that the issuance of local government bonds is expected to increase significantly between August and October, reaching this year’s peak.
Huge Hidden Debt on LGFVs
Data from the CCP’s Ministry of Finance show that as of the end of December 2023, the local government debt was 40 trillion yuan ($5.57 trillion). However, Goldman Sachs estimated in August 2023 that the accumulated debt of local governments was as high as 94 trillion yuan ($13 trillion), including the debt of local government financing vehicles (LGFVs), which is an off-balance sheet liability.
LGFVs are considered the black hole of China’s financial system by the industry. The International Monetary Fund estimated that China’s total debt held by LGFVs skyrocketed from 57 trillion yuan ($7.9 trillion) in 2022 to 66 trillion yuan ($9.1 trillion) in 2023. The principal of the debt on LGFVs is mostly rolled over by borrowing new debt, but the interest on the debt needs to be repaid.
Yu said that the international financial agency and institution’s assessment of China’s debt is “a big blow” to the Chinese regime. “Its refinancing debt and its debt turnover have increased certain risks. Countries in the Western world do not dare to continue to invest, and China’s world factory status has gradually disappeared. Taiwanese, Japanese, and other foreign companies have gradually left the country.”
Yu cited Foxconn as an example. The Taiwanese Apple supplier deserted its iPhone factories in China in April, as Apple is moving production out of China to other countries.
“The financial power of the central government is no longer enough, so how can the local governments have money?” Yu said.
Li said that the CCP’s huge government debt and issuance of bonds have dragged Chinese banks into a debt crisis through reduced liquidity. “So this is actually a vicious circle. They are in the vicious circle. This is not the beginning. They have been doing it for many years, but now, this crisis is becoming more and more critical, and the time when it breaks out and finally collapses completely is getting closer and closer.”
Luo Ya and Reuters contributed to this report.