China’s Ministry of Finance has recently released the 2025 government debt management report. According to the report, by the end of 2025, the country's total government debt balance had reached RMB 102.5 trillion. This comprised RMB 41.2 trillion in national treasury bonds, RMB 54.8 trillion in local government statutory debt, and RMB 6.5 trillion in remaining local government hidden debt. When counting only statutory debt, the total government debt balance stands at RMB 96 trillion, resulting in a statutory government debt-to-GDP ratio of 68.5%. Including the RMB 6.5 trillion in remaining local government hidden debt brings the total government debt-to-GDP ratio to 73.2%. This means that China's total government debt has effectively crossed the RMB 100 trillion threshold.

ANBOUND’s founder, Mr. Kung Chan, noted that surpassing RMB 100 trillion in government debt is a historical point that warrants close attention. A more pressing question is whether the central government's fiscal maneuvering room is narrowing significantly at a time when local finances remain under sustained pressure. This issue may be more important than simply looking at the scale of the debt. RMB 100 trillion is merely a round number that does not automatically trigger any specific problems, but it certainly carries distinct symbolic significance. Discussions surrounding China's debt issues in the past primarily focused on local governments, financing platforms, and real estate. The situation has now shifted, with local debts continually being incorporated into the statutory debt framework, and the central government is persistently expanding fiscal deficits and issuing treasury bonds. This has caused debt issues to increasingly show the features of those related to national public finance.

From a structural standpoint, China's government debt still exhibits distinct local characteristics. By the end of 2025, the local government statutory debt balance stood at RMB 54.8 trillion, accounting for more than half of the statutory government debt. Throughout 2025, local governments issued approximately RMB 10.3 trillion in bonds, which included about RMB 5.4 trillion in newly issued bonds and roughly RMB 4.9 trillion in refinancing bonds. Interest payments on local government bonds totaled about RMB 1.48 trillion. Meanwhile, the resolution of hidden debt through debt swaps continues, transforming a large volume of previously short-term, high-cost, and low-transparency debt into government bonds with longer maturities and lower interest rates.

This shift naturally has positive implications. As debt becomes more public and standardized, short-term liquidity risks decline, and the pressure on local governments to repay principal and interest is somewhat alleviated. In the past, some localities relied on financing platforms for rolling borrowings, which carried high interest rates, short terms, and immense pressure of borrowing to repay debts. Replacing these with long-term local government bonds has significantly lowered average financing costs and extended debt maturities. From the perspective of preventing financial risks, this approach is necessary.

However, debt remains debt. Debt swaps can extend maturities, lower costs, and alleviate short-term liquidity pressure, but they do not make the debt itself disappear. A debt previously borne by a platform company that is transformed into a government bond through a swap makes the risk more transparent, yet the fiscal pressure must still be gradually digested by the government system. Viewed in this light, China's debt problem is entering its next phase. While the most urgent task in the past was avoiding clustered defaults on local debt, the more critical priority moving forward is whether the fiscal system has the capacity to sustainably absorb a growing debt stock.

Now that government debt has surpassed RMB 100 trillion, the focus of observation cannot remain solely on the level of the debt ratio. While 73.2% is certainly an important figure, what truly determines whether debt can continue to function sustainably is whether public finance possesses stable revenues and cash flows. Debt can be rolled over, maturities adjusted, and interest rates lowered, but it ultimately relies on revenue for support.

China's ability to sustain local debt expansion over a long period was closely tied to land finance and rapid urbanization. As local governments built roads, new urban districts, and industrial parks, land values appreciated and real estate development expanded, which in turn generated further land conveyance revenue, tax receipts, and investment growth. Under this model, even though debt increased, asset prices and fiscal revenues grew as well. As long as cities continued to expand and land continued to appreciate, localities had the conditions to absorb debt through development. The problem is that the conditions supporting this cycle have changed significantly today.

Data from China’s Ministry of Finance shows that from January to August 2026, local government-managed fund budget revenues at the local level fell by 22.9% year-on-year, with the most crucial component, namely state-owned land use right conveyance revenue, standing at only RMB 1.38 trillion, a 28.6% year-on-year decline. The continued decline in land revenue indicates that the most important cash flow for local public finance in the past has still not recovered. At the same time, interest expenditure on general public budget debt nationwide reached RMB 918.8 billion during the same period, a 5.4% year-on-year increase. With declining land revenue on one side and increasing debt interest on the other, this shift is the issue that local finances truly need to be aware of.

A large debt scale does not necessarily equate to a debt crisis. As long as revenues continue to grow and assets can generate stable returns, higher levels of debt are entirely manageable. However, if revenue growth slows while interest and rigid expenditures continue to mount, debt will progressively crowd out fiscal space. This is the exact practical situation many localities are currently facing. Expenditures on pensions, education, medical care, as well as the guarantees for basic livelihoods, salaries, and government operations cannot be reduced; debt must continue to be serviced. Simultaneously, existing infrastructure must be maintained, and local governments must still attract investment, develop industries, and stabilize employment. With limited growth in fiscal revenue, the amount of freely disposable funds naturally diminishes.

Secondly, the central government is increasingly bearing the responsibility of stabilizing the entire fiscal system. The national fiscal deficit for 2026 is budgeted at RMB 5.89 trillion, with a deficit ratio set at around 4%. The ceiling on treasury bonds has been raised to RMB 48.55 trillion, and the combined limits for local government general and special debt exceed RMB 63 trillion. Fiscal policy maintains a strong stance, with ultra-long-term special treasury bonds, local special bonds, and central government transfer payments remaining essential tools for economic stabilization. The fiscal system has also explicitly pointed out that the increase in the 2026 deficit is primarily concentrated at the central level, reflecting considerations to alleviate local debt pressure and optimize the debt structure between the central and local governments.

Therefore, this serves more as an indicator of a fiscal trend. China’s central government is certainly not at a point where it lacks funds. Backed by the national tax system, the capacity to issue treasury bonds, and substantial state-owned assets, the central government's financing capability far surpasses that of local governments. The issue, however, is that the central fiscal authorities are being called upon to address a growing number of problems. Local debt resolution requires central policy support, real estate risks need stabilization, bank capital requires replenishment, major infrastructure and technology industries require investment, and expenditures on pensions, medical care, education, and social security will continue to grow.

In other words, the central government still has funds, but it has more and more competing demands to meet, leaving it with less fiscal flexibility than in the past.

It is particularly noteworthy that the treasury bond balance reached RMB 41.2 trillion at the end of 2025. The central government's proactive leverage increase in recent years is justified in its own right. Given the heavy debt pressures faced by local governments, having the central government assume greater macroeconomic regulation responsibilities helps improve the debt structure between the central and local. Nevertheless, if economic growth slows while fiscal expenditure remains high over the long term, central debt will also continuously expand. This implies that China's government debt issue will likely transition in the future from a phase dominated primarily by "local debt" to a new phase where the central and local governments jointly manage the national balance sheet.

Thirdly, the problem that China's public finance genuinely needs to resolve ultimately comes down to the assets backing the debt and the amount of cash flow those assets can generate.

In the past, China built a massive base of infrastructure assets through government debt. Expressways, high-speed rail, airports, water conservancy projects, urban infrastructure, and industrial parks were largely constructed using fiscal and debt funding. These assets have played a tremendous role in economic development. Consequently, it is inaccurate to assume that China has fallen into a fiscal crisis simply by looking at the debt figure exceeding RMB 100 trillion. The flip side of the debt is the massive volume of public and state-owned assets accumulated over the past several decades.

The problem lies in the fact that the economic returns on many of these assets are not high. Certain expressways, industrial parks, new urban districts, and public facilities require long-term maintenance yet fail to generate sufficient cash flow. If new debt continues to be issued to sustain these assets, the fiscal burden will grow increasingly heavy. During the phase of rapid economic growth, these issues could be masked by incremental gains. After entering a period of low growth, whether assets yield returns and projects generate cash flow will become increasingly critical for local governments.

This also means that the future investment model of local governments will likely undergo changes. The common practice in the past was "build first, attract investment second, and consider operation afterwards". As public finances tighten moving forward, the risks associated with this model rise significantly. Without clear industrial demand, a real population and market, and stable cash flows, a project that, even if it is able to secure special bonds or bank loans, may ultimately create a new debt burden.

Therefore, after government debt surpasses RMB 100 trillion, China's public finance needs to enter an era of "balance sheet management". While debt on one side must continue to be standardized, granted lower interest rates, rolled over, and resolved, assets on the other side also need to be revitalized. If a vast amount of state-owned assets, infrastructure, existing real estate, and public resources can improve their returns through operations, equity holdings, real estate investment trusts (REITs), and market-oriented management, the government balance sheet can be strengthened. ANBOUND's past proposal of "public finance in the market" essentially addresses this very issue. Once land finance weakens, public finances cannot rely forever on taxation, land sales, and continued borrowing. They must also consider how to further capitalize assets to secure new long-term sources of revenue.

Hence, government operations and government finance must, to a certain extent, transform into "capitalists" and "investment bankers" participating directly in the capital markets, a move that is likely unavoidable. For example, during the land economy era, the streamlined capital arrangement of coordinated land listings, auctions, and biddings was simple, clear, and consistently effective. In contrast, urban renewal today has seen capital arrangements grow so complex that they now involve eight major financing systems, with funding categories encompassing taxes, loans, bonds, equity, funds, asset-backed securities (ABS), REITs, corporate capital, and residential funds. The institutions involved span fiscal departments, various government branches, financial institutions, legal departments, enterprises, residents, and communities. Consequently, seeking development in the era of urban renewal has rendered the actual capital operations of the government exceptionally complex. This is no longer something a city investment or platform company can handle alone. At the same time, failing to master this complex financial system makes it difficult to secure funding, which in turn risks forfeiting development opportunities. Thus, moving from "public finance in the market" to "the government in the market" is not only a trend, but potentially the only path forward for achieving debt reduction in the future.

Naturally, this also requires a healthy, sound, and orderly capital market to serve as a supporting framework. There are currently quite a few issues in this regard, and capital markets, particularly the Shanghai Composite Index, have experienced relatively large fluctuations driven by shocks. Ideally, a consensus should be reached on the need to put things in order before moving forward. In practice, however, this is no longer feasible. With time running short, the only viable approach is to move forward while addressing the problems along the way.

The real significance of the RMB 100 trillion figure may lie precisely here. China’s public finances have entered an era in which investment decisions must be made with ever greater care. Which projects merit investment, which debts need to be restructured, which assets need to be put to better use, and which expenditures should be prioritized, all of these will require much more rigorous assessment going forward. The rapid growth of the past provided a substantial margin for error, but future fiscal conditions may leave far less room for it.

In a country preparing to develop high technology and willing to invest in high technology, and in a country whose primary strategic objective is achieving common prosperity, the capital market should also serve as one of the primary channels for achieving distribution and sharing in the future.

Final analysis conclusion:

By the end of 2025, China's total government debt had reached RMB 102.5 trillion, officially crossing the RMB 100 trillion threshold. The conditions of land finance, high growth, and asset appreciation that previously supported debt expansion have changed. The real issue will progressively transition from "public finance in the market" to "the government in the market", reinforcing the role of the capital market. This will usher government finance into a new phase that places greater emphasis on assets, cash flows, and investment efficiency.