Central government issues 13 trillion yuan in ultra-long-term special bonds, approximately 1 trillion yuan allocated to local governments

The central government is leveraging its finances to ease the fiscal burden on local governments. The issuance of ultra-long special government bonds is primarily for local fiscal use.

Recently, the Ministry of Finance disclosed the central government budget for 2026. Among them, the budget table for central government fund expenditures in 2026 reveals the much-anticipated use of funds from ultra-long special government bonds: out of the 1.3 trillion yuan in ultra-long special government bond funds for 2026, the budget for central-level expenditures is 240 billion yuan, accounting for about 18% of total expenditures; the budget for transfer payments to local governments is 1.06 trillion yuan, accounting for about 82%. Necessary adjustments will be made in actual execution based on specific allocation situations.

To expand domestic demand and stabilize the economy, China will continue to issue ultra-long special government bonds starting in 2024, with 1 trillion yuan and 1.3 trillion yuan planned for 2024 and 2025, respectively. This year, another 1.3 trillion yuan is planned for issuance. These funds are mainly used to support the construction of “two major” (i.e., major strategic implementation and key area security capabilities) and “two new” (i.e., large-scale equipment renewal and consumer product trade-in) policies.

Ultra-long special government bonds are borrowed and repaid by the central government, but the funds are mainly used by local governments.

According to data from the Ministry of Finance, in the 1 trillion yuan ultra-long special government bond funds for 2024, the actual budget for central-level expenditures is about 124.7 billion yuan, accounting for approximately 12.5% of that year’s ultra-long special government bond funds; the actual transfer payments to local governments are about 875.3 billion yuan, accounting for about 87.5%. In the 1.3 trillion yuan ultra-long special government bond funds for 2025, the actual central-level expenditures are about 230.7 billion yuan, accounting for approximately 18% of total expenditures; the transfer payments to local governments are about 1.0693 trillion yuan, accounting for about 82%. The budget arrangements for this year basically continue the allocation ratio between the central and local governments as in 2025.

This is related to the fact that ultra-long special government bond projects are mainly implemented by local governments, and it is also related to the central government optimizing the debt structure between central and local governments to reduce fiscal pressure on local governments.

In recent years, local fiscal revenue and expenditure contradictions have been exacerbated by multiple factors. Previously, due to the continuous increase in local borrowing, local debt accounted for as much as 60% of the national government debt structure, which is significantly higher than that of the central government. To alleviate the fiscal burden on local governments, the central government proposed optimizing the debt structure. Among the new government debts in recent years, the central government has taken on a larger share, thus easing the fiscal pressure on local governments.

According to this year’s budget reports from the central and local governments and other public information, among the 1.3 trillion yuan ultra-long special government bond funds this year, 800 billion yuan is allocated for “two major” construction, 250 billion yuan is allocated to support consumer product trade-ins, 200 billion yuan is allocated for supporting large-scale equipment updates, while the use of the remaining 50 billion yuan is still unclear.

However, the “explanation of the 2026 central government fund budget” in this year’s central government budget provides clues: according to the decisions and deployments of the Party Central Committee and the State Council, ultra-long special government bonds will continue to be issued in 2026 to continuously support the implementation of “two major” constructions and “two new” policies, with a new special fund for fiscal-financial coordination to promote domestic demand.

This means that 50 billion yuan of ultra-long special government bond funds may be used to establish a new special fund for fiscal-financial coordination to promote domestic demand.

According to this year’s government work report, China has established a 100 billion yuan special fund for fiscal-financial coordination to promote domestic demand, using a combination of loan interest subsidies, financing guarantees, risk compensation, and other methods to support the expansion of domestic demand.

Minister of Finance Lan Fan introduced the background and operational mechanism of the above policies at the economic theme press conference of the Fourth Session of the 14th National People’s Congress.

He stated that the overall economy of our country is moving toward new and improved directions, but the contradiction of “strong supply but weak demand” remains prominent, with insufficient consumer vitality and weak growth in private investment. To solve this problem, this year, the central government has specially arranged 100 billion yuan and launched a package of six policies for fiscal-financial coordination to promote domestic demand, with four policies specifically supporting private investment and two supporting resident consumption. Preliminary estimates suggest that the hundreds of billions of yuan in fiscal funds can support trillions of yuan in credit, achieving a “leveraging effect” of minimal resources yielding significant results.

Recently, the Ministry of Finance publicly issued a “Notice on Revising the Classification of Government Revenue and Expenditure Items for 2026,” which has established financial expenditures reflecting the interest subsidies and expense subsidies arising from the use of ultra-long special government bond income arrangements; expenditures for supplementing capital for financial institutions; risk compensation expenditures for financial institutions; and other financial expenditures.

Additionally, according to the above central government budget, the budget for financial fund expenditures for ultra-long special government bonds in 2026 is set at 57.2 billion yuan, an increase of 87.1%, all of which are central-level expenditures used for paying interest on ultra-long special government bonds.