China is ramping up efforts to control local government debt by making it more difficult for certain state-owned enterprises (SOEs) to borrow funds overseas. According to people familiar with the matter, the National Development and Reform Commission (NDRC), the country’s top economic planning agency, has recently tightened the requirements for regional-level SOEs seeking additional offshore debt quotas. Companies must now demonstrate profitability and operate a clearly defined core business, such as manufacturing or mining, in order to gain approval for new overseas borrowing.
The move represents the latest step in Beijing’s campaign to curb ballooning regional government debt, which has traditionally been channeled through local government financing vehicles (LGFVs). Officials are increasingly extending scrutiny to financially weaker SOEs, including some former LGFVs that have restructured into standard state-owned companies. While these firms remain able to refinance existing debt in the offshore market, the stricter rules are expected to reduce their access to fresh funding, adding pressure on entities already navigating significant financial strain.
China’s leadership has repeatedly flagged local government debt as one of the country’s three major economic and financial risks. Over recent years, regional authorities have struggled to service these liabilities, particularly as a sharp slowdown in the property market slashed revenues from land sales, a critical source of funding. The Ministry of Finance estimates the nation’s so-called hidden debt at 10.5 trillion yuan ($1.5 trillion), while the International Monetary Fund calculates a broader borrowing total exceeding 80 trillion yuan, much of it off the official balance sheet.
The tightened oversight applies to offshore debt with tenors longer than one year, with approvals granted on a case-by-case basis. By narrowing access for non-industrial and weaker SOEs, China aims to limit risk accumulation outside its formal financial system, redirecting capital toward more stable and productive sectors. Analysts warn that the policy could strain regional finances further but underscores Beijing’s commitment to preventing debt from undermining economic stability in the coming years.
