China’s local government debt has become a major risk for the country’s economy. Years of heavy borrowing helped support growth, but the debt burden continues to rise. Local leaders now face falling revenue and growing pressure to pay their bills. The problem could affect public services, banks and China’s long-term economic strength.
The debt surge began after the global financial crisis in 2008. China launched a large stimulus plan to protect jobs and keep its economy growing. The plan relied on borrowing to fund roads, buildings and other projects. The crisis ended, but the use of debt to support growth continued.
By June 2025, one measure put China’s total debt at 315 percent of its gross domestic product, or GDP. Local governments account for a large share of the wider debt problem. They manage almost 90 percent of government spending, yet their income often falls short of their duties.
A key source of local revenue has also weakened. For years, local governments raised money by selling land to property developers. But a long downturn in China’s property market has cut demand for land. This has left many local authorities with less money to fund services and repay loans.
Estimates show the scale of the problem
A study using data from Wind Financial Terminal estimates that local government debt reached at least $12 trillion in 2024. That was equal to about 64 percent of China’s GDP.
The total includes more than $5 trillion in off-balance-sheet debt by December 2024. Much of this borrowing was built up through local government financing vehicles, known as LGFVs. These firms were often used to fund public projects and raise money outside regular government budgets.
Such debts can be harder to track and manage than standard government bonds. They also add to the financial pressure on local leaders, who must meet payment demands while trying to maintain basic services.
Banks have taken on much of the growing debt. Government bonds made up 22 percent of new bank assets over the past five years. This has raised some concerns about the health of the financial system.
Chinese banks face slower asset growth, weaker profits and strict capital rules. A rise in debt does not mean a banking crisis is certain. Still, the growing link between banks and public debt could create further risks if local governments struggle to repay what they owe.
Steps to ease the debt burden
Local governments have tried to raise more money from non-tax sources and reduce spending on public services. But these steps have not been enough to close the gap between income and spending needs.
Beijing has also introduced debt swaps and special refinancing bonds. These measures can replace costly debts with cheaper forms of borrowing. They can lower interest costs and give local authorities more time to make payments.
However, these steps do not fix the main cause of the problem. Local governments still carry wide spending duties without enough stable revenue to meet them. Unless this imbalance changes, debt pressure is likely to remain.
The strain could affect schools, health care, transport and other public services. Cuts in local spending may also weaken household confidence and slow demand across the economy. This could make it harder for China to rely on domestic consumers for future growth.
Debt could shape global competition
The debt problem may also influence China’s role in the world economy. With local spending under pressure, Beijing may continue to depend on exports to support growth. This could add to trade tensions as Chinese firms compete with overseas producers.
The United States may face both risks and new choices. A stronger Chinese export drive could push more countries to seek closer ties with Washington. These partnerships could help address trade disputes and support changes to global trade rules.
The report also urges the United States to protect its technology base. It recommends stronger efforts to counter espionage and less reliance on Chinese supplies, including older semiconductors and rare earths. It also calls for continued investment in American research and innovation.
If economic pressure leads more skilled people to leave China, the United States could also benefit by attracting qualified workers. The report notes that Chinese nationals have helped advance US technology. With suitable security checks, they could continue to make valuable contributions.
However, China’s debt troubles are unlikely to end its military rise. Even if local economies and public services face more strain, the country is expected to remain a major military competitor. The report says the United States should keep investing in defense to deter possible Chinese aggression.
China’s local government debt is therefore more than a financial issue. It reflects a deep gap between public duties and available revenue. Debt swaps may ease pressure for now, but lasting change will require stronger local finances and a more balanced path to growth.
