China Slashes Hidden Local Government Debt by Half in Two Years

China slashed its hidden local government debt by more than half in two years, reducing the balance from 14.3 trillion yuan ($2 trillion) to 6.5 trillion yuan by the end of 2025, according to a State Council report published Monday.

The sharp reduction was driven by a 10 trillion yuan package launched in late 2024 to resolve hidden debt, allowing local governments to issue trillions of yuan in bonds to replace off-balance-sheet borrowing, saving billions of yuan in interest.

While risks from hidden debt eased, Beijing increased statutory borrowing to buffer a slowing economy. This pushed the country’s total outstanding government debt to 102.5 trillion yuan at the end of last year.