Financing ministry in China promises to increase spending to boost consumer spending and manage local government debt levels
China has announced a proactive fiscal policy for 2025, focusing on the flexible use of debt space and special bond tools to stimulate domestic demand. The policy aims to support investment in key areas such as population, consumption, and technology.
The total amount of debt-swap bonds allocated for 2025 stands at 2 trillion yuan, equivalent to US$251 billion. By the end of June, 1.8 trillion yuan of these bonds had been issued.
One of the key measures in this policy is the issuance of ultra-long-term bonds and local government special-purpose bonds. These bonds are being issued more rapidly to raise capital efficiently. The goal is to offset pressures from declining land-based finance and support government spending without destabilizing debt sustainability.
These bonds help local governments finance major infrastructure and innovation projects, thereby stimulating domestic demand and promoting longer-term economic growth aligned with national priorities.
Finance Minister Lan Foan announced plans to accelerate fiscal spending, as reported in Study Times, a newspaper run by the Central Party School of the Communist Party of China. The average interest rate on the issued government bonds is 1.52%, and the issuance in the first half of 2025 is higher than the total amount of debt-swap bonds already used (1.44 trillion yuan).
The issuance of government bonds in the first half of 2025 is equivalent to US$1.09 trillion. In the first six months of 2025, China issued a record 7.88 trillion yuan worth of government bonds, marking a year-on-year increase of 35.28%.
The ruling party's Politburo, a major decision-making body, has called for the thorough implementation of a "more proactive fiscal policy" and a "moderately loose" monetary policy. The central government will issue and use ultra-long-term bonds and local government special-purpose bonds.
Debt-swap bonds are also part of China's fiscal strategy. Local governments are expected to use debt-swap bonds to exchange higher-cost or short-term debt for longer-term debt, improving debt maturity profiles and lowering financing costs. This measure enhances debt management by reducing rollover risks and stabilizing local government debt structures.
Debt-swap bonds support local governments in clearing off less sustainable obligations and freeing up fiscal space for new investment projects, aligned with the broader goal of stimulating domestic demand sustainably. As of last Friday, 1.44 trillion yuan of the issued debt-swap bonds have already been used, leaving 1.8 trillion yuan of the allocated amount unissued.
China's fiscal policy remains proactive but more precise and sustainable, ensuring that spending supports population needs, consumption growth, and technological advancements while managing financial risks carefully. This approach combines flexible bond issuance—including ultra-long-term and special-purpose bonds—and targeted debt restructuring through debt swaps to foster domestic demand while prioritizing fiscal prudence and sustainability.
- The proactive fiscal policy for 2025, as announced by China, involves the issuance of ultra-long-term bonds and local government special-purpose bonds, which are not only used for financing major infrastructure and innovation projects but also for debt swaps to improve debt maturity profiles and lower financing costs, enhancing debt management.
- The implementation of China's more proactive fiscal policy for 2025 includes the issuance of debt-swap bonds, a part of their fiscal strategy, aimed at clearing off less sustainable obligations and freeing up fiscal space for new investment projects, thereby supporting domestic demand sustainably within the overall goal of stimulating the economy.
