ECONOMY

China Expands Use of Local Government Bonds to Revive Struggling PPP Projects

Published: Jun. 18, 2025 5:19 a.m. GMT+8

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A PPP highway project in Shanxi province.

In an attempt to ease growing fiscal pressures and rescue stalled infrastructure partnerships, Chinese provinces are increasingly relying on local government special bonds to patch budget gaps and repay overdue corporate debt, including troubled public-private partnership (PPP) contracts.

Recent budget adjustment plans from Hunan and Yunnan provinces reveal a change in how newly issued special-purpose bonds are being deployed. Once limited to funding new infrastructure projects, these bonds are now being used to supplement local government budgets, repay overdue payments to private contractors, and even to support struggling legacy PPP projects.

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Chinese provinces are increasingly using local government special bonds to cover budget gaps, repay overdue corporate debt, and support struggling PPP infrastructure projects.
Hunan and Yunnan redirected significant portions of their 2025 bond quotas—Hunan: 20 billion yuan for arrears, 27.7 billion for budgets; Yunnan: 35.6 billion for arrears, 36.9 billion for fiscal support.
China’s PPP sector faces a 2.8 trillion yuan funding shortfall, with policy shifts reflecting growing financial risks and calls to convert PPP projects to special bond funding.

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Who’s Who

Palm Eco-Town Development: Palm Eco-Town Development is a company that launched a lawsuit against Laiyang city due to breached land agreements. This case exemplifies the fragilities in China's public-private partnership (PPP) sector, where payment defaults and legal disputes have increased. The company's situation highlights the financial distress faced by private contractors in the PPP sector.

Enterprise Early Warning System: As of mid-June, the Enterprise Early Warning System data indicated that nearly 40% of this year's special bond quota for fiscal supplementation, amounting to 312.8 billion yuan, had already been issued.

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