Please see below the daily update article from EPIC Investment Partners, received this morning – 11/09/2025
China’s government is taking significant steps to address a mounting issue of unpaid bills owed by local authorities to the private sector, a problem with estimated arrears reaching over $1 trillion. This initiative, which has the backing of President Xi Jinping, aims to complete a comprehensive settlement by 2027, restoring trust and stability to a private sector that has been significantly impacted by the financial delays.
The core of the strategy involves leveraging state lenders and policy banks, such as the China Development Bank, to provide loans to local governments. This financial injection is intended to cover at least 1 trillion yuan ($140 billion) in a first phase, with the ultimate goal of clearing the substantial debt. The move acknowledges the severity of the situation, as President Xi has publicly warned that delayed payments can cripple businesses and erode public confidence in the government.
While this plan offers much-needed relief to private companies and contractors, it also shifts a considerable financial burden onto the nation’s state banks. These institutions are already grappling with reduced profitability and a growing number of bad loans, a consequence of being enlisted to provide cheap credit to support the economy. Bankers are reportedly concerned about the potential for these new advances to turn bad and are seeking assurances from regulators.
It is estimated that local government-related entities owe an astounding CNY 10 trillion ($1.4 trillion), a sum equivalent to 7% of China’s GDP last year. This new policy is not just a financial manoeuvre; it is a critical effort to stabilise the economy, support the private sector, and uphold the credibility of the government’s financial commitments. The success of this long-term initiative will be a key indicator of China’s economic resilience.
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Charlotte Clarke
11/09/2025