ECONOMY

China Orders Banks to Recall Troubled Loans Tied to Hidden Local Government Debt

Published: Dec. 23, 2025 7:34 p.m. GMT+8

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China has ordered some banks to recall troubled loans and freeze troubled accounts linked to local government financing vehicles (LGFVs) after auditors uncovered illegal financial activities, signaling a further push to rein in risks from hidden local government borrowing.

The measures were disclosed in a report released Monday by the National Audit Office on the rectification of problems identified in an audit of the 2024 government budget execution.

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China ordered banks to recall and freeze troubled loans/accounts linked to LGFVs after illegal activities were found.
An audit revealed banks enabled some LGFVs to raise public funds for debt repayment, offering returns up to 12%.
Authorities instructed local governments to cut non-essential spending, monetize assets, and strengthen supervision of local government debt.

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