China’s Hidden Debt: Regions Increase Borrowing Amid the Collapse of the Real Estate Market

The debt problem of local authorities in China is rapidly escalating and becoming one of the main systemic risks to the country’s economy. Unlike the central government’s debt, it is regional and municipal obligations that are increasingly undermining the financial stability of the PRC.

In 2025, municipal infrastructure debt amounted to about 60 trillion yuan (48% of GDP), with another 40 trillion yuan in direct regional debt. These debts are increasingly being serviced with the help of new borrowing through bond issue.

The situation is significantly complicated by the downturn in the real estate market. For years, up to half of local budget revenues had been coming from the sale of land for development. The collapse in demand for real estate has led to a sharp drop in land prices and a reduction in regional revenues, forcing local authorities to sink even deeper into debt.

At the same time, the official 100 trillion yuan debt is only part of the real picture. There are also so-called “hidden debts” – obligations of quasi-state infrastructure and municipal companies, for which local authorities are effectively the guarantor. According to estimates, their volume may reach another 50 trillion yuan, bringing the total debt of local authorities to 150 trillion yuan, or about 120% of China’s GDP.

In January–February 2025 alone, local authorities in China issued bonds worth 1.7 trillion yuan, or approximately US$240 billion. These are unprecedented amounts, indicating the regions’ growing dependence on debt financing in the short term.

China’s debt problem is structurally more complex than that of the USA, as the yuan is not a fully convertible currency. This limits Beijing’s ability to shift the debt burden to the outside world. In this situation, China is increasingly using russia as an ad hoc economic and financial partner, in particular to ensure resource security, alternative payment mechanisms, and geopolitical maneuvering without taking on long-term commitments.