1. China’s booming tourism industry broke more records last year, with domestic travelers taking 6.52 billion trips and spending 6.3 trillion yuan ($930 billion) according to the Ministry of Culture and Tourism [para. 1][para. 2]. Despite crowded scenic areas and viral social media fame, the state-owned tourism Local Government Financing Vehicles (LGFVs) that developed these attractions are losing money, creating a fresh dimension of China’s local government debt problem [para. 3][para. 6].
2. These tourism LGFVs historically functioned less as tourism operators than as land-finance vehicles [para. 4]. During the investment boom around 2015, they borrowed heavily against government-granted land, relying on property sales to repay the debt under the premise that tourism projects could lift surrounding land values [para. 4][para. 10].
3. The model collapsed with the real estate slump beginning in 2021, which dried up the cash flow they depended on, leaving behind idle assets, mounting losses, and exposed credit risks, particularly acute in less-developed regions [para. 5][para. 11]. The scale is surfacing: Guizhou province disclosed that nearly a quarter of 1,109 tourism projects built between 2016 and 2020 are now idle, suspended, or underperforming, exemplified by the Shuisi Building [para. 8]. Listed companies tell the same story, with Zhangjiajie Tourism Group losing over 1 billion yuan on its replica Dayong Ancient City and entering court-led restructuring, and Overseas Chinese Town losing money for four straight years [para. 9].
4. The industry's response has been a sharp pullback from costly investments. The average investment in major deals by leading tourism groups fell from about 3.2 billion yuan in 2023 to just over 1 billion yuan in 2025 [para. 13]. Real estate developers have largely abandoned the space, and some regional tourism LGFVs have been ordered out of asset-heavy business entirely [para. 14]. They are pivoting to lighter, cheaper ventures like VR experiences, digital light shows, night markets, and drone shows, but most new ventures are still finding their feet and are not yet profitable [para. 15][para. 16].
5. A test case for dealing with the existing debt is underway in Xi’an’s Qujiang New Area [para. 18]. The proposed fix is to carve the balance sheet into three piles: public-welfare assets and their debts go to the government for repayment via fiscal spending and bonds, property assets are sold, and the new city-level tourism group keeps only the tourism assets and associated debts [para. 19][para. 20]. Sorted this way, the group's financial burden dramatically lightens, allowing the remaining debt to be serviced by operating cash flow [para. 21].
6. Despite restructuring, the core problem persists. According to Fitch Ratings’ Sun Hao, tourism LGFVs have historically been judged on their ability to lift land values and local economies, not on project profitability [para. 22]. As state-backed entities, they cannot escape quasi-public duties like buying land to prop up the market precisely when it weakens [para. 23]. These unprofitable tasks fall to them specifically because no private firm will take them, leaving the fundamental conflict between profit targets and public duties deeply unresolved [para. 23][para. 24].
AI generated, for reference only
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