【Local Government Investment and Financing Research Center】 As 2026 begins, what progress has been made in debt resolution and state-owned investment platform transformation?

Summary

How is the debt resolution progressing at the beginning of 2026?

Hidden Debt Resolution:

1. Local government bond swaps: In January and February, the issuance scale of local bonds used for debt relief decreased year-on-year, with Jiangsu, Zhejiang, Hunan, and other regions issuing relatively high amounts.

2. Hidden debt clearance: According to incomplete statistics, by the end of February 2026, Guangdong, Beijing, Shanghai, Xinjiang, and 34 prefecture-level cities and 175 districts/counties announced they had completed the clearance of hidden debts.

3. Platform withdrawals and key provinces exiting: Regarding platform withdrawals, in January and February, 27 and 6 entities respectively declared they would no longer undertake government financing functions, a decrease from December last year. Since the debt relief package began (August 2023), a total of 1,028 entities have withdrawn from platforms, with Jiangsu, Zhejiang, Shandong, Henan, and Guizhou leading. Meanwhile, the number of market-oriented entities declaring in January-February increased both year-on-year and month-on-month. For key provinces exiting, Inner Mongolia and Jilin have confirmed exit, and Ningxia has met exit conditions.

Operational debt resolution:

Bond issuance: In January-February, net financing of urban investment bonds remained negative and under pressure, mainly refinancing old debt with new debt. Two cases of non-standard debt resolution were monitored, both in Anhui. Only one new “unified borrowing and repayment” bond was issued, by Guizhou Jili Water Investment Co., Ltd.

Outstanding corporate accounts payable:

The government work report again emphasized accelerating the clearance of corporate accounts payable. From January to February, many regions continued to promote solutions and announced progress.

Urban investment platform integration and transformation:

1. Overview of platform integration: In January and February 2026, 33 and 19 platform integration events were monitored, indicating a slowdown. Jiangsu remains the most active region, followed by Zhejiang, Fujian, Shandong, Anhui, and Hunan. The main types include asset integration to establish new industrial or state-owned asset operation platforms; professional integration of business segments focusing on core responsibilities, regional resource consolidation, or strategic industry layout; and regional resource integration to create high-credit entities. As debt resolution and platform transformation deepen, integration now mainly reflects professional segment integration.

2. New issuance of industrial bonds: The number of new industrial bond issuers increased significantly compared to 2025, mainly in social services, non-bank finance, construction decoration, utilities, and retail sectors, with a focus on quasi-urban investment entities. In January-February, 85 such entities were active, mostly small-scale and with weaker credit. These include platforms involved in equity investment, industrial holding, finance, utilities, and cultural tourism, mainly in Zhejiang, Jiangsu, Fujian, Tianjin, Sichuan, Guangdong, Shandong, and Anhui.

Main text

1. How is the debt resolution progressing at the start of 2026?

(1) Progress in hidden debt resolution

1. Local government bond swaps:

In January-February, issuance of local bonds for debt relief decreased year-on-year, with Jiangsu, Zhejiang, and Hunan issuing relatively high amounts. The total issuance was 783.2 billion yuan, down 251.6 billion yuan from the same period last year. Of this, refinancing special bonds for hidden debt amounted to 683.3 billion yuan, down 270.9 billion; special new bonds issued totaled 99.9 billion yuan, up 19.3 billion. Bonds for repaying existing debt have not yet been issued.

Regionally, Jiangsu led with 82.3 billion yuan, followed by Zhejiang and Hunan, each over 60 billion yuan. The issuance progress varies across regions; Zhejiang, Hebei, and Xinjiang have completed their annual quotas, while Guizhou and Yunnan have not started. Special new bonds in Zhejiang, Hunan, and Guangdong exceeded 10 billion yuan each.

2. Hidden debt clearance:

By the end of February 2026, Guangdong, Beijing, Shanghai, Xinjiang, and 34 prefecture-level cities and 175 districts/counties announced completion of hidden debt clearance. Many regions also announced this in government work reports and budget drafts. Xinjiang stated in its government report that “all existing hidden debts have been resolved,” making it the first to do so. Jilin confirmed exit in January 2026, becoming the second. Ningxia had already met exit conditions earlier.

3. Platform withdrawals and key provinces exiting:

(a) Platform withdrawals:

In January and February, 27 and 6 entities respectively declared they would no longer undertake government financing functions, a decline from December. Since August 2023, 1,028 entities have withdrawn from platforms, with Jiangsu leading at 228. Zhejiang, Shandong, Henan, and Guizhou follow. The pace of declaring market-oriented operations has increased, with 57 and 39 entities in January and February respectively.

(b) Key provinces exiting:

Inner Mongolia and Jilin have confirmed exit, and Ningxia has met conditions. Inner Mongolia’s government report in July 2025 emphasized consolidating results, and Jilin announced successful exit in early 2026. Ningxia previously stated in March 2025 that it met exit criteria.

(2) Operational debt resolution

1. Bonds:

In January-February, issuance of urban investment bonds was 259.2 and 154.5 billion yuan respectively, with a 28.9% increase in January. However, net financing remained negative, mainly refinancing old debt, with over 96% of bonds used for borrowing new debt. Bond issuance costs declined, with average interest rates of 2.3% and 2.2%.

2. Non-standard debt resolution:

Earlier policies supported extension, interest reduction, and swap of non-standard debt for key provinces. In March, the Financial Committee emphasized optimizing debt restructuring and supporting non-standard and “double non” debt resolution, which often involves high-cost, short-term, risky financing. Only two cases of non-standard debt resolution were monitored in Anhui in early 2026. Nanchang City’s 2026 work report mentioned reducing financing costs and swapping 12.2 billion yuan of existing loans.

3. Unified borrowing and repayment:

This policy allows 12 key provinces (later expanded) to use annual bond quotas for cross-platform borrowing and repayment, supporting better-rated platforms to take on weaker ones. Only one bond was issued in January-February, by Guizhou Jili Water Investment, for 398 million yuan at 3.6%. As of February 2026, 24 such bonds have been issued, mainly in Guizhou, Yunnan, and Shandong.

(3) Accounts payable to enterprises:

The government work report again emphasized speeding up clearing enterprise accounts payable. Many regions reported progress in January-February, with some local governments completing their “630” ledger tasks. Policies and special loans have accelerated, reducing overall scale. From 2024, government arrears are estimated at over 11 trillion yuan, mainly owed to small and medium platform companies, affecting regional economy and social stability. Clearing these remains a priority.

2. Progress of urban investment platform integration and transformation in 2026

(1) Overview of platform integration:

In January and February, 33 and 19 platform integration events were monitored, indicating a slowdown. Jiangsu remains most active, with 15 events; Zhejiang, Fujian, Shandong, Anhui, and Hunan follow. The main types include asset integration to establish new industrial or state-owned platforms; professional segmentation of business lines; and regional resource consolidation to create high-credit entities. Integration now mainly focuses on professional segment integration to optimize resource allocation and improve efficiency.

Key cases include:

• Establishing Rizhao State-owned Investment. In December 2025, Rizhao government approved the formation of Rizhao State-controlled Investment Group, which was registered in January 2026. Its sole subsidiary is Rizhao Urban Investment.

• Establishing Chengdu Wenjiang Industrial Investment. In December 2025, Wenjiang District set up Chengdu Wenjiang Industrial Investment Holding, transferring 89.81% of Chengdu Jiulian Investment for free. Its subsidiaries include Chengdu Haike Asset Management and Chengdu Jiulian Lianzhong Engineering.

• Restructuring Nan’an Xingu Investment. Nan’an Xingu Investment was a subsidiary of Quanzhou Nanyi Investment. The restructuring involved transferring 51% equity from Quanzhou Nanyi to Nan’an municipal asset management, and asset transfers involving several local companies.

• Restructuring Nantong Haimen Haikong Group and Nantong Haimen Haikong Group. These involved equity transfers and name changes to form regional state-owned holding companies.

(2) Professional integration of business segments:

This is a key direction for platform transformation, including:

• Asset “slimming” to focus on core business, e.g., transfer of Hangzhou Detong Property from Jiande City Investment to Suzhou GCL Energy.

• Regional resource integration or absorption, e.g., transfer of equity in Fujian Dongnan Aviation Technology to Sanming Ruiyun Industry Investment.

• Market-oriented strategic industry layout, e.g., Tangshan Holdings’ acquisition of Gongjin Shares for 947 million yuan, pending approval.

(3) Building higher credit rating entities:

Zhenjiang Railway’s credit rating was improved by merging assets and transferring equity to strengthen its asset base.

(2) Overview of new industrial bond issuers:

In January-February 2026, the number of new issuers increased significantly but remained dominated by quasi-urban investment entities. Among 91 and 28 new issuers respectively, about 74% and 64% are similar to urban investment types. The sectors are concentrated in social services, non-bank finance, construction decoration, utilities, and retail. These entities are generally small, with weaker credit, mainly engaged in equity investment, industrial holdings, finance, utilities, and cultural tourism, mostly in Zhejiang, Jiangsu, Fujian, Tianjin, Sichuan, Guangdong, Shandong, and Anhui.

Most are small-scale, with limited assets and weaker credit, mainly relying on investment returns. Many are still in early stages, with uncertain exit prospects.

Mainly, equity investment and industrial holding platforms focus on regional industry investment and resource integration, with some in finance and utilities. Their profitability and cash flows are variable, and some have high debt levels, leading to overall weaker credit.

Public utilities and cultural tourism platforms include Foshan Water Environment, Pinghu Technology, and Xingyang Tourism, with stable cash flows and higher credit ratings.

Overall, the new quasi-urban investment entities reflect a trend of local governments establishing industrial platforms amid platform downsizing, but most are still in early stages. Stable-operating entities tend to have better cash flows and credit.

【Author Profiles】

Wang Na, Far East Credit Researcher

Wang Chen, Director of Far East Credit’s Currency and Interest Rate Research Center

Luo Qiang, Managing Director of Cinda Securities’ Bond Financing Department