HONG KONG, 30 January 2026. CSPI Ratings has today released a research report “2026 Outlook for Chinese LGFV Offshore Bonds—Weak Issuance, Deepened Restructuring”.
The key takeaways from this report are as follows:
In 2025, Chinese local government financing vehicle (LGFV) overseas bonds saw their first negative net financing; Dim Sum Bond issuance waned, regional issuance divergence deepened, and county-level LGFV issuances shrank markedly
As the belated transmission of regulatory policies takes hold, a chill has descended on China's LGFV offshore bond market, with external policy constraints significantly outweighing the demand for debt rollover. In 2025, the issuance scale of Chinese LGFV overseas bonds stood at USD40.78 billion, hitting the third-highest level in history; the maturity scale reached a historical peak of USD42.55 billion. The annual net financing registered at -USD1.77 billion, marking the first annual net capital outflow. The scale of new financing plummeted by 50.3% year-on-year, and the growth rate of refinancing (11.4%) also lagged far behind that of maturing debt (44.7%). Driven by the rigid demand for debt refinancing, USD bond issuances rose by 11.0% year-on-year, while Dim Sum Bond issuances—mainly for project financing and working capital replenishment—plunged by 51.3% year-on-year due to the impact of the policy of Curbing New Debt and Defusing Existing Debt. In 2025, Shandong, Sichuan and Henan maintained net financing inflows with a moderate issuance momentum; Jiangsu and Zhejiang saw net financing outflows with a notable tightening of issuances. The number of county-level LGFV issuers dropped sharply by 25% year-on-year to 121.
Spreads of USD bonds stabilised while those of Dim Sum Bonds widened; strong-credit issuers remained in demand, and the onshore-offshore spread divergence persisted
Financing costs of Chinese LGFV USD bonds trended lower on the back of US dollar rate cuts, with the cost midpoint concentrated at 5~7% and credit spreads standing at around 60~150bp, a year-on-year drop of about 60bp. By contrast, spreads of Dim Sum Bonds widened, with the pricing midpoint converging at 6~7% and credit spreads at approximately 310~390bp, a year-on-year rise of some 80bp. Municipal-level issuers posted lower issuance costs for both USD and Dim Sum Bonds than county-level peers. In 2025, the onshore-offshore spreads of 3-year RMB-denominated bonds issued by domestic AAA, AA+ and AA-rated LGFVs reached 189.1bp, 363.2bp and 393.1bp, respectively, edging up 2.7bp, 62.1bp and 20.3bp year-on-year. Dim Sum Bonds from strong-credit issuers gained robust market traction, while issuance costs for weak-credit issuers converged at elevated levels, indicating extreme prudence in the market's lower-tier credit assets.
2026 will see eased refinancing pressure yet heightened difficulty in new issuances, with the market expected to remain in a weak state
In 2026, the maturity scale of Chinese LGFV overseas bonds will drop 17.1% year-on-year to USD35.29 billion, with maturities evenly spread across Q1 to Q4, leading to a relatively eased refinancing pressure. We expect new financing to remain subject to stringent policy controls, and the annual new issuance is likely to stay in a weak momentum. The overseas bond issuance costs of strong-credit issuers are expected to improve moderately, supported by the downward shift of China's and the US's respective interest rates, debt restructuring policy regulations and marginal contraction in supply; by contrast, weak-credit issuers will still have very limited pricing power in issuances. Given the notable contraction in issuances in Jiangsu and Zhejiang, attention should be paid to the operational performance and debt redemption of relevant existing issuers; regions with relatively neutral regulations, such as Shandong and Sichuan, will face a large maturity scale in 2026-2027, requiring close monitoring of marginal changes in their overseas debt management policies.
The LGFV sector credit conditions are stabilising; supply contraction underscores allocation value, with tail risks remaining a key concern
We believe that the accelerating resource integration and top-down fiscal support are expected to further enhance the industry's operational efficiency and liquidity. In essence, onshore and offshore bonds of LGFV issuers share the same risk origin yet feature divergent returns. As the onshore-offshore spreads of strong-credit issuers narrow, coupled with supply contraction in high-quality regions such as Jiangsu and Zhejiang, investors may be forced to adopt a credit downward migration strategy. At this stage, coupon rates of onshore AA+, AA and unrated issuers are converging at elevated levels. Together with inadequate pricing of Financial Guarantee Institution (FGI)-guaranteed credit enhancement, credit stratification remains indistinct, leaving room for spread arbitrage. Currently, industrial investment entities (IIEs) account for a relatively low share of total issuances, yet their future issuance performance deserves close attention as a new major issuing force. As the deadline for the comprehensive Policy on Delisting LGFVs from Local Government Financing Platforms approaches, individual credit risk exposure may intensify amid industry restructuring. LGFVs in regions with limited support from higher-level authorities and weak capabilities in allocating financial and industrial resources will continue to face the dual pressures of debt repayment and transformation.
ANALYST CONTACTS
Primary Analyst
Jameson Zuo
+852 3615 8341
Secondary Analyst
Sherlock Liang
+86 755 2348 3690
sherlock.liang@cspi-ratings.com
Committee Chair
Larissa Wu
+852 3615 8317
Media Contact
Rating Services Contact
Date of Relevant Committee: 23 January 2026
Additional information is available on www.cspi-ratings.com
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