Audit finds widespread manipulation of hidden debt data
Local governments are fudging data to meet hidden debt repayment deadlines.
ICYDK: Hidden debts refer to local government off-balance sheet liabilities borrowed via local government financing vehicles (LGFVs).
- In March 2023, Beijing compiled a list of heavily indebted LGFVs, introducing strict controls on their ability to borrow.
- LGFVs were ordered to repay hidden debts and exit the list by June 2027.
In response, some LGFVs are fiddling the accounts: The National Audit Office’s (NAO) 2025 budgetary implementation audit report – published June 24 – found that 6% of LGFVs have falsified data to exit the list.
- The NAO’s findings were based on spot checks of 142 LGFVs, across ten provinces.
The details: Nine LGFVs exited Beijing’s indebted list despite failing to meet the required conditions, of which:
- Two falsely repaid their hidden debts by taking on new debt and misappropriating local government funds.
- Seven had accrued new hidden debts post-March 2023 – totaling RMB 2.2 billion – and only repaid older debt obligations.
The NAO also identified four provinces that artificially wrote-off RMB 6.7 billion of debt since 2023 by taking on new loans to cover repayments, or simply deleting records from the debt monitoring system.
- 15 counties had also accumulated a combined RMB 4.2 billion in new hidden debt through local state-owned enterprises.
Our take: We suspect the true rate of data falsification is much higher than the 6% figure uncovered through the NAO’s spot checks.
- Localities that are massaging the books are incentivized to conceal their misconduct and prevent the NAO from uncovering the true extent of data manipulation.
- It’s also possible that the NAO itself is under pressure to overlook some misdemeanors, as a higher data falsification rate will reflect badly on central policymakers.
Get smart: Beijing’s current approach is insufficient to resolve local government debt problems.
- Instead, central authorities need to ramp up central-to-local transfers – until policymakers can find a sustainable way to raise local revenues.