China Launches Trillion-Dollar Bailout for Local Government Debts

October 4, 2025

China's rolling out a massive bailout plan. Over a trillion dollars in unpaid local government debts to private companies need fixing. Bloomberg just reported it. Big move. Maybe their largest economic intervention in years.

The plan looks ambitious. China Development Bank and other state banks will fund local authorities. Pay contractors. Clear backlogs. It shifts risk deeper into banking while trying to help private businesses breathe again.

Officials are taking it step by step. First comes 1 trillion yuan—about $140 billion. They want everything settled by 2027. Kind of surprising how long they've let this problem grow.

Xi Jinping personally flagged the issue back in February. His speech went public. He seemed worried. These payment delays were hurting businesses badly. Threatening stability. Could "cripple" companies, he said. Erode trust. His words sparked action.

Top regulators told banks to make this happen. Not entirely clear how banks feel about it. They can't lend directly to local governments—that's forbidden. Instead, they fund government-backed entities that owe money to private firms. Complicated setup.

Banks aren't exactly thrilled. They're already struggling. The top five commercial banks set aside 3.51 trillion yuan for possible loan losses in the first half of this year. That's up 6% from last year. Profit margins? Squeezed thin.

Banking insiders are nervous. Many want protection against future defaults. Can't blame them.

The numbers are staggering. Economist David Li Daokui thinks local government entities owe about 10 trillion yuan to companies and civil servants. That's 7% of China's GDP. Financial problems have seeped everywhere—services, payrolls, you name it.

Caitong Securities says the government might issue 200 billion yuan in special bonds this year. Help with payments. Land projects. Construction.

Bonds won't fix everything. Banks must step up. The burden shifts from broke local governments to national lenders. Agencies scramble to coordinate. Will it work? Nobody knows for sure. But China needs to fix these imbalances. Soon.