Beijing says its narrower measure of hidden local debt fell, while the IMF estimates that debt owed by the companies Chinese cities use to borrow rose about 14 percent from 2023 to 2025, reaching roughly $10.5 trillion. The rescue of Zhuhai Huafa shows how one city is keeping a cash-strapped borrower afloat by moving assets between state-owned companies and arranging new financing.
Zhuhai Huafa Group is the largest state-owned company in the southern Chinese city of Zhuhai. In late October, it failed to repay two trust products at maturity. It also asked at least three banks to extend its loans and cut interest rates.
The news set off China’s worst credit selloff in two years. The selling spread to Chinese government debt. On Oct. 30, 30-year government bond futures fell 0.94 percent, their largest one-day drop since March 9.
In early November, a senior Zhuhai official said the city had already provided Huafa with more than 40 billion yuan (about $6 billion). The city was coordinating another 70 billion yuan (about $10.5 billion) in financing.
Huafa’s own figures show why investors sold. The group posted its first annual loss in 2025, a consolidated net loss of 16.9 billion yuan (about $2.5 billion).
The net loss attributable to shareholders of the parent company was 11.03 billion yuan (about $1.65 billion). On the same basis, Huafa lost another 6.9 billion yuan (about $1 billion) in the first nine months of 2026.
At the end of September, Huafa held 52.2 billion yuan (about $7.8 billion) in cash. It owed 154 billion yuan (about $23 billion) within a year. Its bond documents listed about 413 billion yuan (about $62 billion) in interest-bearing debt as of March.
Huafa is a local government financing vehicle (LGFV), a type of state-owned company Chinese cities created to borrow on their behalf. In November 2024, Finance Minister Lan Fo’an put local governments’ hidden debt at 14.3 trillion yuan (about $2.1 trillion) at the end of 2023. In September 2025, he reported that it had fallen to 10.5 trillion yuan (about $1.6 trillion) by the end of 2024.
The International Monetary Fund uses a broader measure. It estimated LGFV debt at 64.4 trillion yuan at the end of 2023, 4.5 times Beijing’s hidden-debt figure for the same date. The IMF figure rose to 73.2 trillion yuan (about $10.5 trillion) at the end of 2025. In a statement included in an earlier IMF report, China’s executive director said hidden local debt had been “properly resolved.”
Part of the official decline comes from companies leaving the list Beijing counts. In a November report, the State Council said the number of remaining LGFVs had fallen 92 percent by the end of September 2026. Their outstanding operating financial debt had fallen 79 percent by the end of June 2026. Both declines were measured from the end of March 2023.
Many vehicles left the list through mergers and deregistrations. Others exited after debt swaps converted their hidden debt into official local government bonds. Companies that meet the other exit requirements can leave the list with financial debt still outstanding if creditors holding at least two-thirds of that debt agree.
Analysts found that many companies that left the list still depend mainly on government construction contracts and budget payments for revenue. IMF staff warned that removing companies from the official list could weaken oversight and allow local governments to keep increasing off-budget debt.
People’s Bank of China Governor Pan Gongsheng put LGFVs’ operating debt to financial institutions at 14.8 trillion yuan (about $2.2 trillion) at the end of 2024.
Local governments also face a backlog of unpaid bills. In February 2025, Tsinghua University economist David Daokui Li, a policy adviser to Beijing, estimated that local governments owed 10 trillion yuan (about $1.5 trillion) to contractors and civil servants. That was about 7 percent of GDP.
Huafa’s urban operations unit shows how these bills pile up inside a city’s own companies. The unit has developed new districts with the city’s authorization since 2009. It paid development costs up front and was to recover them through a share of land-sale proceeds. Caixin reported that the unit was owed tens of billions of yuan.
The land sales that were supposed to repay Huafa have collapsed. Zhuhai’s land-sale revenue fell 94 percent, from 56.3 billion yuan (about $8.4 billion) in 2020 to 3.3 billion yuan (about $490 million) in 2025.
Nationally, local government revenue from land-use rights fell 14.7 percent to 4.15 trillion yuan (about $620 billion) in 2025. It was the fourth straight year of double-digit decline. Revenue was less than half its 2021 peak of 8.7 trillion yuan.
Both Huafa and the city agency that controls it have changed leaders repeatedly. Li Guangning joined Huafa in 1998 and became chairman of its listed property unit in 2014. He led the group’s expansion from Zhuhai into more than 70 cities. Annual property sales topped 100 billion yuan for five straight years.
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Li left his group posts in 2025 and resigned as chairman of Huafa Properties on May 30. Xie Wei took over as group chairman in January 2025. Guo Jin replaced Xie on Sept. 9, 2026, becoming the group’s fifth chairman since 1980.
Zhuhai’s State-owned Assets Supervision and Administration Commission owns more than 93 percent of Huafa. Its three most recent chiefs, Li Congshan, Wu Aicun and Li Wenji, have come under investigation. The investigation into Li Wenji began in April 2026.
Zhuhai cannot cover Huafa’s debt from its budget. The city’s general budget revenue was 49.4 billion yuan (about $7.4 billion) in 2025.
The rescue has involved moving assets among companies the city already owns. In September, Gree Group, another Zhuhai state-owned company, agreed to pay 4.53 billion yuan (about $676 million) for Huafa’s 96.28 percent stake in Zhuhai Investment Holding. Gree also agreed to pay 3.17 billion yuan (about $473 million) for Huafa’s 23 percent stake in the city’s duty-free group.
In October, Huafa moved to transfer part of its stake in another subsidiary, Huachuang Investment Holding, to Gree Group and Zhuhai Transportation Holding Group.
Huafa paid interest on schedule on two public bonds in early November. China Lianhe Credit Rating kept Huafa’s rating at AAA but placed it on negative watch. Huafa’s onshore bond due in 2029 rebounded 17 percent to 85 yuan after the city announced its support. It had traded at roughly 100 yuan the previous week.
Shenzhen also used a state-owned company to support a struggling developer, China Vanke. State-owned Shenzhen Metro, Vanke’s largest shareholder, provided 31.46 billion yuan (about $4.7 billion) in shareholder loans in 2025. That allowed Vanke to repay 30.49 billion yuan in public debt.
Shenzhen Metro then capped its support, and Vanke asked bondholders for extensions. Shenzhen Metro resumed lending in 2026. By July, Vanke had secured extensions on all of its public bonds due that year.
China’s debt stood at 308.2 percent of GDP at the end of June, according to the National Institution for Finance and Development, a Beijing think tank. The government was the only sector whose debt rose as a share of GDP in the second quarter.
The IMF’s executive board recommended restructuring unsustainable LGFV debt through insolvency frameworks and recognizing losses promptly. Beijing has chosen refinancing. Its 10 trillion yuan (about $1.5 trillion) program, approved in November 2024, converts hidden debt into official local government bonds with longer maturities. IMF staff concluded that the swap does little to improve LGFVs’ ability to service their debt.
The Austrian School of economics holds that business failures, painful as they are, free up capital for more productive uses. Failures also teach lenders to stop financing projects that cannot pay for themselves. Government subsidies keep capital tied up in those same projects. When lenders expect another bailout, they keep extending credit to investments that cannot generate enough income to repay what they already owe.
The CCP treats liquidation as a political threat. In Zhuhai, the city is keeping Huafa in operation through asset transfers and new financing. Huafa has asked banks for more time to repay, and some trust investors are still waiting for overdue payments.
Beijing can shrink its list of local financing vehicles by refinancing some of their debts with government bonds and allowing companies to leave the list with other debts still outstanding. The bills still have to be paid. In Zhuhai, a full year of city budget revenue would cover less than one-eighth of Huafa’s interest-bearing debt.
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