The Chinese Communist Party (CCP) is deeply mired in debt, with its money-grabbing efforts continuing unabated. Its collapse may not be far off. (Jeff Nenarella/Dajiyuan)
[People News] The debt of local governments in the Communist Party of China can no longer be masked by the official slogan 'risks are controllable.' According to official data, by the end of 2023, the balance of hidden debts for local governments reached 14.3 trillion yuan. Following a large-scale bond issuance, this hidden debt is expected to be converted into explicit debt, reducing the balance to 10.5 trillion yuan by the end of 2024, and further compressing it to approximately 6.5 trillion yuan by the end of 2025.
However, the statutory debt balance of local governments is projected to rise significantly from about 40.7 trillion yuan at the end of 2023 to 54.8 trillion yuan by the end of 2025, with some statistical measures nearing or exceeding 58 trillion yuan by mid-2026. The total government debt, encompassing both statutory and hidden debts, is anticipated to reach 102.5 trillion yuan by the end of 2025, with the debt-to-GDP ratio climbing to 73.2%.
Simultaneously, local government land transfer revenues have plummeted from a peak of nearly 8.7 trillion yuan in 2021 to around 4 trillion yuan in recent years. This has led to a sharp increase in local governments' reliance on special bonds and refinancing bonds. In other words, borrowing has become the primary means for local finances to remain sustainable.
Currently, the balance of household deposits stands at approximately 172.86 trillion yuan and 173.5 trillion yuan, which appears substantial. However, this represents the last line of defense for hundreds of millions of families dealing with mortgages, retirement, medical expenses, and preventive savings. The central government's treasury balance is limited, necessitating large-scale transfers to local governments. Rigid expenditures in defense, stability maintenance, education, and various aspects of stable growth all require funding. Consequently, the overall debt pressure has shifted from localized risks to systemic risks.
The recent online reports that Xi Jinping has issued a directive mandating that "local financing platforms must fully exit by the end of June 2027 and eliminate hidden debts by the end of 2028" arise in a context where the Chinese Communist Party has established this as a strict political task. This directive is clearly not about technical debt management; rather, it serves as a top-down political benchmark. Local party committees and governments are required to meet these deadlines, or else the top leaders of the party and government risk accountability and removal from their positions.
This method of reducing the intricate, layered, and systematically complex debt issues to a simple periodic zeroing out mirrors the logic of the "dynamic zeroing" approach during the pandemic. It aligns perfectly with Xi Jinping's governing style and his consistently blunt policy approach, characterized by outsiders leading insiders, a one-size-fits-all strategy, and a movement-style governance.
This approach to resolving the debt issue fundamentally fails to address the institutional roots of debt creation, such as blind investments driven by promotion incentives for officials, reliance on land finance, mismatches in powers and financial rights between central and local governments, and the soft budget constraints of financing platforms. These critical issues are entirely overlooked. Instead, the focus shifts to administrative coercion, political alignment, and compliance testing, alongside achieving statistical targets. According to official data from the Chinese Communist Party, by the end of 2025, over 82% of financing platforms across the country are expected to have nominally exited, with some provinces even accelerating their timelines. The rigidity of these political tasks compels local officials to enhance their execution capabilities.
The term 'debt zeroing' primarily refers to the transfer of debt and the concealment of liabilities at the operational level, rather than the genuine elimination of debt. The Chinese Communist Party (CCP) employs a core strategy of issuing local government bonds that come with lower costs and longer maturities. This approach allows them to replace previously hidden high-interest implicit debts, which were concealed within urban investment and financing platforms, with government statutory debt entries. The CCP is leveraging low-interest rates to ease the burden of debt interest, as bank interest rates enter the 1% era. This strategy is not solely aimed at stimulating consumption and boosting investment; it also includes a significant reduction in the overall cost of debt interest.
In 2025, the CCP plans to increase the debt limit by 6 trillion yuan through a '6+4+2' strategy. This will involve a one-time replacement of the debt over three years, with approximately 800 billion yuan in special bonds issued annually for five consecutive years, leading to a total of 4 trillion yuan in debt resources. Additionally, some urban renewal debts will be deferred. As a result, the scale of implicit debts that local governments must manage independently before the end of 2028 will be significantly reduced to around 2.3 trillion yuan. Following this replacement, the average interest cost is expected to drop by more than 2.5 percentage points, resulting in cumulative savings of several hundred billion yuan in interest.
This aligns with the previous strategy of establishing asset management companies to offload non-performing assets from banks, where bad debts are essentially 'relocated.' The entities responsible for liabilities transition seamlessly, converting short-term high costs into long-term low costs, and transforming what was once 'invisible' into something 'visible and controllable.' However, the overall debt has not vanished, and the obligations for repayment remain unchanged; they have simply shifted in terms of accounting entries and the structure of debt maturities. The 'exit' of local urban investment platforms follows a similar approach, officially detaching from government financing functions and being removed from regulatory lists. Yet, many of these platforms continue to operate through renaming, mergers, debt restructuring, or being taken over by state-owned enterprises, with a true market-driven capacity for self-sustainability still not established. After the government has accrued significant debt, it simply walks away, administratively 'zeroing out' the issue, while the economic chain of debt persists, now no longer the government's responsibility. The largest debtor has transformed into a credible entity.
Who will ultimately bear the cost of this debt? Historically, resolving financial or local government debt often involved creating asset management companies to offload liabilities, with the central bank providing indirect support through refinancing, lowering reserve requirements, and injecting liquidity to reduce financing costs. This was then followed by distributing costs across society through inflation, monetary expansion, tax and non-tax revenues, and the sale of state-owned assets.
As local governments experience a decline in land finance, face restrictions on platform financing, and see central fiscal space tighten, the pressure naturally shifts to businesses and residents. Recent policies that have been publicly implemented, such as blocking capital outflows, intensifying tax collection, and targeting the wealth of the affluent, are creating a chain of operations for this pressure transmission.
Starting September 1, 2026, dividends and bonuses received by foreign individuals from foreign-invested enterprises will no longer be exempt from taxes and will be subject to a uniform personal income tax rate of 20%. This change ends the special preferential treatment that has been in effect since 1994 for 32 years. The government justifies this move by citing the need for tax system fairness, closing loopholes that allow for arbitrage through 'fake foreign investment,' and adapting to the development of a unified large market. However, in the context of tightening fiscal conditions, the intent to seize wealth is quite clear.
In parallel, the proposed 'Local Additional Tax Law (Draft for Comments)' aims to consolidate the urban maintenance and construction tax, education fee surcharge, and local education surcharge into a single local additional tax, with rates ranging from 11% to 13%, to be set by provincial authorities. Currently, the overall tax burden is approximately 12% in urban areas, 10% in county towns, and 6% in other regions. Following the merger, the distinction between urban and rural tax rates will be eliminated, potentially leading to a dramatic increase in tax burdens for businesses in some low-tax areas. For instance, if a company pays 10 million yuan in value-added tax, the original surcharge at 6% would amount to about 600,000 yuan, but if the rate changes to 13%, it would rise to 1.3 million yuan, resulting in an additional 700,000 yuan. While these adjustments may appear to be a standardization of the tax system when viewed in isolation, they represent a clear instance of legal plunder when considered against the backdrop of the 'dual zero' political objectives and local financial shortfalls.
The intensified campaign against organized crime and evil is set to be prominently launched in mid-2026. The General Office of the Central Committee and the General Office of the State Council have issued relevant notices to initiate a deepening struggle lasting approximately one year. This campaign will focus on traditional organized crime as well as new forms such as those utilizing online platforms and 'soft violence', with an emphasis on precise law enforcement and dismantling protective networks. While the official narrative continues to frame this as a matter of social governance, local authorities often reinterpret it as a means of generating revenue due to the dual pressures of fiscal constraints and political targets. When ordinary economic disputes, debt collection, or asset disposal are labeled as 'involving organized crime and evil', penalties, asset freezes, and compulsory enforcement can quickly become a shortcut for boosting financial resources. In situations where regular tax revenues and land income fall short, campaign-style law enforcement and one-time penalties are increasingly viewed by local governments as straightforward options for 'completing tasks'.
In recent years, the Communist Party of China has ramped up efforts in areas such as tax collection and management, social security bases, non-tax revenue, and the disposal of state-owned assets. This includes strengthening tax audits, standardizing corporate payment bases, eliminating various preferential policies, and intensifying penalties and asset revitalization efforts. The stark contrast between high levels of resident savings and the government's financial strain has resulted in a more extreme approach to debt clearance under Xi Jinping's administration than in previous years. Historically, debt resolution emphasized 'resolving debt through development', allowing for some flexibility; however, now there are strict deadlines set for platform exits in 2027 and achieving zero hidden debt by 2028, which are directly tied to the political futures of local officials. This shift has reinforced the political nature of the campaign and limited technical maneuvering.
In the end, debt will not simply vanish. While substitution has lowered interest rates and extended repayment terms, the overall amount remains on the balance sheets of the government and associated entities. The nominal exit of financing platforms does not signify the conclusion of urban investment economics. Although broadening tax sources and strengthening law enforcement can provide a temporary boost to financial resources, they may also further dampen corporate investment and consumer spending, severely undermining consumer confidence and expectations. Residents' deposits are not a free source of fiscal resources; if they are continuously drained through various means, social security and precautionary savings will quickly erode.
The Chinese Communist Party is keen to offload the burden of local debt and suppress the zero-COVID policy as a political imperative. In the short term, this may yield statistical compliance, but in the long run, it embeds the pressure of debt repayment more deeply into the everyday costs faced by businesses and the public. This situation is not merely a straightforward debt restructuring; it represents a transfer of debt driven by political priorities aimed at maintaining stability. While the accounts may be cleared, the obligations will not disappear. Transfers can be executed, but the costs will ultimately be borne by society. The era of officials exploiting the populace did not emerge suddenly; rather, it has gradually transitioned from being implicit to explicit under the combined pressures of high debt and political mandates.
(First published by the People News)△
News magazine bootstrap themes!
I like this themes, fast loading and look profesional
Thank you Carlos!
You're welcome!
Please support me with give positive rating!
Yes Sure!