China could issue trillions in bonds to ease local debt, says economist

China can consider the issuance of treasury bonds worth around 30 to 50 trillion yuan ($4.19 trillion to $6.97 trillion) in the coming two to three years to better address local government debt and bring the economy to a trajectory that aligns with its growth potential, said a prominent Chinese economist.

Li Daokui, dean of the Institute for Chinese Economic Practice and Thinking at Tsinghua University, told China Daily that reforming China's fiscal framework could hold the key to tackling multiple economic challenges — including local government fiscal stress, underperforming domestic demand and oversupply in some emerging sectors.

According to Li, the core problem facing the Chinese economy is the excessive debt burden on local governments, which has led local governments to seek short-term revenue flows such as taxes and fees on businesses and households, weighing on the consumption and investment willingness of market entities.

To break this cycle, Li proposed a shift from the traditional concept of public finance — which focuses on short-term budget balancing — to a model of public financial management, which emphasizes long-term balance sheet health and cash flow sustainability.

A central policy recommendation, Li said, is for the central government to significantly expand long-term sovereign bond issuance, potentially reaching 30 to 50 trillion yuan over the next two to three years.

Li made the remarks earlier this month on the sidelines of the 2025 ZGC FORUM's Global Forum of Finance and Economics. The forum was hosted by the Central University of Finance and Economics and supported by the People's Government of Shijingshan district, Beijing municipality.

He said the proposed sovereign bond issuance would serve four key functions – the restructuring of local government debt by replacing high-interest liabilities with lower-cost, long-term central government bonds, addressing the fiscal pressure on local governments and unleashing their spending power.

Li said a portion of the funds should also be directed toward purchasing unsold housing stock for the provision of affordable housing, financing the urban integration of migrant workers to expand their access to social services, as well as encouraging the orderly exit of excess production capacity in sectors such as electric vehicles, while enabling more competitive firms to scale up.

"The measures proposed can kick off a smoother and more dynamic economic circulation," Li said.

"With that, China's economy can return to a more stable path — one that fully unleashes our potential and lays a solid foundation for the 15th Five-Year Plan (2026-30) and the development of all key industries."

With a high national savings rate and significant State-owned assets at the central level, Li said China has the resources and institutional capacity to implement the reforms, which would also support the internationalization of the renminbi by providing more risk-free RMB assets for global investors.

"I believe the path forward is already quite clear — it's just that the consensus hasn't fully been reached yet. But I'm confident it will soon," Li said, adding that new policy measures aimed at boosting consumption can be expected in the second half of the year.