Li Chengguang has been serving as the head of the debt department in a southern city for over a year, and he increasingly feels the importance of debt management in local government work.

Previously, there was a departmental adjustment in the local area, which separated the debt management function from the relevant financial business departments and established a separate debt department. This department, along with the budget department and the treasury department, became the three core departments of local finance.

Li Chengguang said, "These three types of work correspond to the three core tasks of income, expenditure, and risk prevention and control, and are also in line with the three major events of development, reform, and stability. In China, the main line of local work basically revolves around these three aspects, and budget, treasury, and debt have become the core pillars of financial operation

The management of local government debt has entered a new stage.

On November 3, 2025, according to the official website of the Ministry of Finance, a new "Debt Management Department" was established, with one of its important functions being to strengthen government debt monitoring and supervision, prevent and resolve hidden debt risks.

At the local level, although various provincial finance departments and prefecture level cities have already established relevant functional departments, the importance of debt management departments is further highlighted.

In 2024, China launched a large-scale round of local government debt issuance. In November of the same year, China launched a comprehensive debt policy worth up to 12 trillion yuan; On this basis, an additional 500 billion yuan of debt repayment funds will be arranged in 2025 to support debt repayment work such as resolving outstanding corporate accounts and stock PPP project issues; In the fourth quarter of 2025, by activating the local debt balance limit, an additional 300 billion yuan of funds will be added for debt conversion.

On May 9th, the State Council executive meeting studied and promoted the work of resolving local government debt risks. The meeting pointed out that since the deployment and implementation of the comprehensive debt plan, significant results have been achieved in resolving debt risks. We should continue to focus on key areas and weak links, consolidate local main responsibilities, improve supportive debt policies, enhance local independent debt repayment capabilities, and ensure the timely completion of debt repayment tasks. We need to establish a sound long-term mechanism and resolutely prevent the addition of hidden debts.

Yuan Haixia, President of the China Chengxin International Research Institute, told the Economic Observer that China's debt restructuring work has now entered a deep water zone in the midfield. The comprehensive debt policy of "6+4+2" has been implemented by two-thirds, and the cumulative reduction of implicit debt in the national stock has exceeded half, marking substantial progress in risk resolution.

However, Yuan Haixia also warned that there are still multiple challenges facing the current situation: firstly, the contradiction between fiscal revenue and expenditure in some regions has intensified, and the funds available for debt repayment are stretched thin; Secondly, the debt maturity structure in certain regions is unreasonable, with a high proportion of short-term debt, leading to concentrated pressure on stage repayment; Thirdly, the transformation process of urban investment platforms is difficult, and their independent profitability has not yet been formed. They are still in a passive adjustment period relying on external support.

On the one hand, it is necessary to strictly control debt, and on the other hand, it is necessary to ensure that the government plays a role in economic development, which undoubtedly poses a challenge to the heads of debt departments.

Li Chengguang, who has been working in the debt department for a year, found that the work at the grassroots debt department is heavy and stressful, mostly transactional work with limited promotion opportunities, and most people are unwilling to engage in this position.

He further explained that the current contradiction in local debt management is prominent: land finance continues to shrink, local fiscal revenue is under pressure, and there is insufficient funds available to resolve debt; The review of special bonds is becoming stricter, the requirements for returns are increasing, local financing channels are tightening, and the contradiction between development and compliance is intensifying; Central policies focus on macro guidance, while local governments need to coordinate fiscal, financial, and industrial development, taking into account ensuring smooth operation, preventing risks, and promoting development, which is extremely difficult to implement in practice.

Li Chengguang said that in fact, debt plays a pivotal role in connecting finance and public finance in local work. It not only prevents financial risks from being transmitted to the financial system, but also prevents financial risks from impacting finance in turn. This is a two-way transmission mechanism. From the perspective of local finance, debt management connects finance, banking, and industrial development, and is the core hub of local governance. Grassroots debt departments need to balance policy implementation, risk prevention, local development, and other work, with workload and functions far exceeding macro level institutional management.

New Debt Department

To be honest, if I were to choose, I would definitely not want to go to the debt department. This position is laborious, thankless, and stressful, "said Li Chengguang.

Previously, its department was the Financial Debt Department, which was later split into two departments: the Financial Department and the Debt Department.

The establishment of the Debt Department is ostensibly in response to the institutional adjustment of the Ministry of Finance's establishment of the Debt Department, but in reality, it is due to the cancellation of the localized debt office, and the overall transfer of personnel and work functions back to the Finance Bureau. As a result, a new department has been established within the bureau to digest and undertake the transferred functions.

At the municipal level, the original Financial Debt Department did not have many functions: firstly, it was responsible for PPP (government social capital cooperation) project management; The second is to manage local financing guarantee companies and fulfill the responsibilities of investors; Thirdly, cooperate with the Financial Department of the Provincial Department of Finance to carry out work; The fourth is to coordinate debt management related work.

After the division of departments, the newly established Debt Department is only responsible for one thing: debt.

Local government debt is divided into two categories: "explicit debt" and "implicit debt". Explicit bonds "refer to the balance of" general bonds "and" special bonds "directly issued and repaid by local governments; The "implicit debt" comes from local financing platforms, which are mostly local state-owned enterprises that undertake infrastructure investment tasks. The related debt includes the balance of urban investment bonds, commercial bank loans, and various non-standard financing balances. Local financing platforms bear direct repayment responsibility for this portion of debt. Once there is a risk of debt default, local governments need to fulfill their guarantee and rescue obligations, and actually bear indirect debt repayment responsibilities. Therefore, it is designated as implicit debt of local governments.

After taking over the debt department, Li Chengguang felt that his vacation was far away from him, especially in 2026. Since the end of the New Year until now, I have been working from home almost every day until 10 pm, and during holidays, I also work from home

In his opinion, the current debt management work has undergone significant changes compared to before. Firstly, the local fiscal revenue and expenditure situation is not optimistic, which increases the pressure of debt repayment; Secondly, the higher authorities have increasingly high requirements for debt management work and adopt a zero tolerance attitude towards newly added implicit debts; Thirdly, the scope of business involved in debt management is becoming increasingly broad.

The person in charge of the municipal finance bureau mentioned above said that local government debt can be divided into two categories: one is government debt, such as general debt, special debt, etc; The other type is state-owned enterprise and urban investment debt. In some regions, the debt department and budget department will be co located, as they have a higher degree of correlation. In addition, a separate state-owned enterprise debt department will be established. Whether to establish a separate debt department, that is, to manage government debt and state-owned enterprise financing platform debt together, depends on actual needs. We have gone through multiple rounds of debt resolution, from handling local government debt, to financing platform debt, to state-owned enterprise debt, and now we also need to deal with overdue corporate accounts. The content related to debt is increasing, "said Li Chengguang.

For example, at present, overdue corporate accounts can be repaid using special debt funds, and this business has gradually been incorporated into the debt management system.

Li Chengguang said that the macro institutional design approach cannot be applied to understand the debt departments at the municipal or county level. There are significant differences in the functional positioning and work intensity of grassroots departments compared to the central and provincial levels. Local debt management is not just about data monitoring, mechanism construction, supervision and inspection, or accountability, nor is it just about issuing a few batches of special bonds. As for the specific functions of the debt department, it not only covers explicit and implicit debts, but also includes debt management of various financing platforms such as urban investment, which can be said to be a package and overall planning. However, debt work itself is a very macro and complex matter. At the central or provincial level, it is more about formulating normative documents, clarifying negative lists, and streamlining management mechanisms. At the city and county level, the debt department not only has to undertake management functions, but also involves a lot of macro level work, such as formulating risk prevention strategies and coordinating with government decisions. These are systematic tasks that are far from simple as executing documents, "said Li Chengguang.

Chief's Thoughts

After one year in office, Li Chengguang has some thoughts on local debt management.

In his view, the central level focuses on institutional design and risk prevention, while local governments need to face financial revenue and expenditure, debt repayment, and liquidity pressures, and there are differences in the focus of their work. Local governments rely on central funding support to resolve implicit debts; And centralized bonds provide local governments with debt replacement as support, which can reduce interest costs and exchange time for resolution space, but local governments still need to bear the pressure of interest payments.

In order to mitigate the hidden debt risks of local governments, the central government introduced a comprehensive debt restructuring plan in 2024. The incremental fiscal policy announced by the Ministry of Finance specifies an increase of 6 trillion yuan in local government debt quota to replace existing implicit debt. In addition, 800 billion yuan will be allocated annually from newly added local government special bonds for five consecutive years, and 200 billion yuan of implicit debt for shantytown renovation due in 2029 and beyond will still be repaid according to the original contract. The total amount of debt that can be resolved is 12 trillion yuan, and the total amount of implicit debt that local governments need to digest will be reduced from 14.3 trillion yuan to 2.3 trillion yuan.

Li Chengguang believes that the current debt management mechanism is still being improved, and policies need to balance principles and flexibility, balance policy requirements with local realities, in order to effectively prevent risks and promote stable local economic development.

He further explained that this kind of coordination is not simply a debt management issue. Taking debt resolution as an example, current debt restructuring is not about canceling and clearing debts, but a process of replacement and standardized conversion. In short, it means that local governments use government bond funds to replace implicit debts with statutory government debts. After the transformation, local governments only need to pay lower interest than the original implicit debt, essentially reducing local interest payment costs and easing local fiscal liquidity pressure. How to deal with other debts of state-owned enterprises that are not included in the scope of implicit debt statistics? These types of debts also require local governments to bear the pressure of repayment. In addition, local governments also have to deal with the high-intensity liquidity demand brought by various rigid expenditures and the pressure of monthly debt interest payments every month. How to resolve these are current and urgent issues, "said Li Chengguang.

Li Chengguang identified the common financial difficulties faced by multiple regions.

According to the above data from the Ministry of Finance, local governments only need to dispose of 2.3 trillion yuan of implicit debt on their own, but the phenomenon of new implicit debt still occurs from time to time. In August 2025, the Ministry of Finance also reported six typical cases of local government implicit debt accountability.

Li Chengguang said that interest is a rigid expense, and once overdue, it means a substantial debt default, which can easily trigger a chain reaction in financial institutions and even trigger regional and systemic financial risks. To alleviate liquidity pressure, many places can only coordinate various resources and pressure banks to lower interest rates. For example, some local governments use large deposits such as housing provident fund and property maintenance funds as bargaining chips to negotiate with banks, clearly stating that if interest rates are not lowered, the accounts will be transferred to other banks. This practice of forcing financial institutions to give up interest in order to maintain their deposit and loan scale is not something that the central and provincial governments will operate on. Only grassroots governments will act in this way because other sources of liquidity are already scarce

Li Chengguang stated that local financial difficulties are not only debt issues, but also involve a complex situation of intertwined economic development, financial security, and risk prevention. Local finance is facing multiple pressures such as the "three guarantees", and policy design should consider the actual situation at the grassroots level.

He suggested that policy-making should take into account the practicality of implementation. Anticipate possible deviations in the execution process. Institutional design requires the establishment of a standardized governance model, such as zero based budget reform, implicit debt management, and budget performance management. These measures are essentially aimed at improving the level of standardized governance of local finance.

(At the request of the interviewee, Li Chenguang is a pseudonym in the article)