Research Publication: 2024 Outlook for Chinese Local Government Creditworthiness

01 Mar 2024
    HONG KONG, 1 March 2024. CSPI Ratings has today released a research report “2024 Outlook for Chinese Local Government Creditworthiness”.

    The key takeaways from this report are as follows:

    Anticipated Modest Rise in Asset Prices in 2024 Set to Enhance Nominal GDP Growth Rates Across Chinese Provinces

    In the past year, China grappled with relatively subdued domestic and external demand, leading to a decline in economic output prices. Consequently, the national nominal GDP growth rate stood at 4.6%, an uncommon occurrence where it lagged behind the real GDP growth rate by 0.6 percentage points. Insufficient demand directly contributed to the widening disparity in nominal GDP growth rates among provinces. Notably, only seven provincial-level regions, including Tibet, Hainan, Xinjiang, Shanghai, Guangdong, Zhejiang, and Beijing, managed to surpass the real GDP growth rate in terms of nominal GDP growth. These economies are either driven by tourism, agricultural sectors, or are well-developed, consumption-driven economies. Conversely, provinces heavily reliant on resources or heavy industries, such as Shanxi, Jiangxi, and Jilin, experienced significant disparities between nominal and real GDP growth rates. The decline in prices of key commodities and industrial products exerted downward pressure on their nominal GDP growth rates, subsequently impacting local residents' incomes and governments’ tax revenues.

    Looking ahead to 2024, a continued recovery in consumer spending, intensified infrastructure investment, effective implementation of policies supporting industrial economic growth, and the industrial enterprises of developed economies such as the US and Europe entering the restocking phase are expected to stimulate overall demand. This, in turn, may bolster China's producer price index (PPI) and provide an uplift to the economies of industrialized provinces. It is projected that in 2024, most provinces will regain nominal GDP growth rates surpassing real GDP growth rates, fostering a stronger sense of economic expansion.

    Anticipated Fiscal Expansion in 2024 to Bolster Local Government Debt Ratios on an Upward Trajectory

    In 2023, the sluggish land market led to a mediocre fiscal revenue recovery for local governments. However, sustained financial support from the central government, coupled with controlled fiscal expenditures, allowed most local governments to achieve a level of fiscal stability and witness a decline in the deficit-to-budgetary revenue ratio. Our estimations indicate that the average deficit-to-budgetary revenue ratio (deficit as a percentage of fiscal budgetary revenue*) for local governments decreased from 17% in 2022 to 15% in 2023. Notably, provinces such as Gansu, Jilin, Heilongjiang, and Xinjiang experienced a more pronounced narrowing of their deficits. These regions benefitted from continuous increases in central government financial support while being relatively less affected by the subdued performance of the land market.

    Looking ahead to 2024, local governments are expected to face continued challenges in augmenting their fiscal revenues, as government fund revenues may persistently encounter constraints from the real estate market.

    Consequently, leveraging further by the central government to support local finances will play a pivotal role in this year's proactive fiscal policies. It is projected that local government fiscal initiatives will result in an overall expansion of deficit, thereby further elevating their debt burdens. The implementation of the “Debt Resolution Package' in 2023 led to a substantial increase in direct debt for local governments. However, the issuance of special refinancing bonds has helped local governments reduce the average interest rate of their broad debt and optimize their debt structure. It is anticipated that in 2024, local governments may continue to issue a certain volume of special refinancing bonds.

    We Anticipate a Stable Outlook for the Overall Credit Profile of Chinese Local Governments

    In 2023, a subdued nominal GDP growth led to an amplified divergence in regional economic development, however prudent fiscal management, augmented financial support from the central government, and the implementation of the “Debt Resolution Package” contributed to a modest decline in fiscal deficit level and an improvement in liquidity condition for local governments. This consequently fostered a solidification of the overall credit profiles of local governments.

    Moving into 2024, as marginal recovery in aggregate demand takes hold and asset prices exhibit a potential moderate rebound, it is expected to uplift the nominal economic growth rates across various regions. The growth trajectory of fiscal and tax revenues of local governments is anticipated to sustain stability. However, the persistently sluggish land market and amplified fiscal expenditure intensity may escalate fiscal pressures at the local government level. Projections indicate a continued ascent in local government debt levels, yet the decline in government bond interest rates resulting from accommodative monetary policies is likely to maintain a reasonable level of interest payment burden for local governments.

    As for local government financing vehicles (LGFVs), the steady government credit and effective implementation of the “Debt Resolution Package” are poised to support the creditworthiness of LGFVs in the medium to short term. Conversely, the reinforcement of financing control policies may restrict additional financing for certain regions with high debt burdens and lower administrative levels. As we navigate through 2024, it remains crucial to closely monitor potential tail risk.


    Note: * Deficit=budgetary expenditure-revenue; Budgetary revenue=general public budgetary revenue + transfer payments + government fund revenue.

    This research report is written in Chinese. In case of any discrepancies between the English version and the Chinese version, the Chinese version shall prevail.


    Primary Analyst

    Jameson Zuo, FRM

    +852 3615 8341

    Secondary Analyst

    Siqi Lin

    +86 755 83210225

    Committee Chair

    Ke Chen, PhD

    +852 3615 8316

    Media Contact

    Rating Services Contact

    Allen Wei

    +852 3615 8324

    Date of Relevant Committee: 29-February-2024

    Additional information is available on



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