After the review by the Standing Committee of the National People's Congress in November, a new round of large-scale debt conversion has already begun and is accelerating. Compared to the past, what are the differences in this round of large-scale implicit debt resolution, and what characteristics are emerging in the current implementation process? This article systematically organizes the information for reference.
The new round of large-scale debt conversion has three major differences from the past: clearer mechanisms, increased regulatory coordination, and more targeted approaches.
Under the rising pressure of local debt, a new round of large-scale debt conversion has begun; compared to the past, the policy support mechanisms, regulatory scope and intensity, and specific debt conversion ideas for this round of implicit debt resolution are significantly different. From the perspective of policy support mechanisms, the implicit debt resolution mechanism in this round is clearer and more stable. The total amount of debt conversion is approved in one go and implemented in annual arrangements. Moreover, based on the scale of local government implicit debt, local government debt limits are allocated in one go according to a unified national ratio.
From the regulatory perspective, the &#34;zero tolerance&#34; high-pressure regulatory stance on implicit debt remains unchanged, and the coordination of implicit debt regulation has been strengthened. Currently, the subjects of &#34;implicit debt accountability&#34; have been refined to local public institutions, and accountability actions delve into the economic substance of transactions or matters. Based on the special action inspections for financial and accounting supervision in 2023, public schools have emerged as subjects of implicit debt accountability for the first time; at the same time, the reporting of accountability actions has become more in-depth, including public schools violating regulations by &#34;renting instead of building&#34; new campuses and local finance bureaus returning capital reserves in name.
From the perspective of debt conversion ideas, the approach to this round of large-scale implicit debt resolution may be more targeted, with a significant increase in the importance of solving the issue of overdue payments to enterprises. Since the second half of 2023, addressing overdue payments to enterprises has been elevated to an unprecedented level of importance. In late October, the &#34;Opinions on Solving the Problem of Overdue Payments to Enterprises&#34; was released. Therefore, in this new round of large-scale debt conversion, solving overdue payments to enterprises may be a key focus.
Under the mechanisms and ideas of this round of large-scale debt conversion, the interest-bearing debt scale of urban investment platforms in places like Tianjin and Jiangsu is relatively large compared to their comprehensive financial strength, and may receive key support from debt replacement policies. In 2023, the interest-bearing debt scale of urban investment platforms in Tianjin, Jiangsu, Zhejiang, Guangxi, and Chongqing is relatively large compared to their comprehensive financial strength, and may receive key support from debt replacement policies. From the perspective of solving overdue payments to enterprises, industries such as military electronics, environmental infrastructure, and pharmaceutical commerce may benefit relatively more from this round of debt conversion.
By the end of December, the new replacement debt quota for 2024 has basically been issued, with three major characteristics: rapid implementation, extended terms, and a focus on promoting development.
As of late December, the new replacement debt quota for 2024 has basically been issued. Compared to the past, the implementation process of this round of debt resolution shows three major characteristics:
Characteristic 1: The &#34;replacement debt&#34; in this round has been implemented rapidly, with over 2 trillion yuan issued for three types of &#34;replacement debt&#34; from November to mid-December. After the debt conversion plan was implemented in November, special purpose refinancing bonds were issued rapidly, with an issuance scale of nearly 2.1 trillion yuan from November to mid-December, while special refinancing general bonds also issued 72.3 billion yuan. From the current issuance situation of &#34;replacement debt,&#34; the 2 trillion yuan of special refinancing bonds and 800 billion yuan of special purpose bonds for 2024 have basically been issued
Feature 2: The term of this round of &#34;replacement bonds&#34; has significantly lengthened. In this round of hidden debt replacement, the term of special refinancing bonds has notably increased. For special refinancing general bonds issued in 2024, the proportion of 10-year bonds reached 53%, an increase of nearly 33 percentage points compared to 2023; among the special refinancing special bonds issued in 2024, the proportion of ultra-long bonds over 10 years reached 70%, the highest level in history, and an increase of 49 percentage points compared to 2023.
Feature 3: This round of debt conversion is not only about risk prevention but also about promoting development. In this round of special refinancing special bonds, the issuance scale and proportion from major economic provinces such as Jiangsu and Shandong have significantly increased, indicating that this round of debt conversion not only alleviates debt pressure in key debt conversion areas but also supports stable growth in major economic provinces. Beijing, Guangdong, and Shanghai, which participated in the pilot program for eliminating hidden debts, also issued special refinancing bonds in 2024, suggesting that under the background of comprehensive local debt supervision, some regions may have new debt conversion needs.
Looking ahead, under the guidance of the Central Economic Work Conference's directive to &#34;advance all work as early as possible and ensure it is implemented effectively,&#34; the issuance of &#34;replacement bonds&#34; in 2025 may be brought forward, positively impacting M1 (original caliber). Financial data for November has already begun to reflect the impact of debt conversion, with corporate medium and long-term loans being weak while unit current deposits have improved. If the issuance of related bonds is brought forward, combined with the accelerated use of debt conversion funds in 2024, it will substantially improve cash flow in the private sector, especially for enterprises, and M1 may continue to improve in early 2025.
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The current round of large-scale debt issuance has begun, with three major differences compared to the past: clearer mechanisms, increased regulatory collaboration, and more targeted approaches. The policy support mechanism is stable, the supervision of hidden debts has intensified, and accountability has been refined to local public institutions. Addressing the issue of overdue payments to enterprises has been elevated to an important position, with related industries such as military electronics and environmental infrastructure likely to benefit. By 2024, the issuance of replacement bonds will be completed, characterized by rapid implementation, extended maturities, and a focus on promoting development

- A new round of large-scale debt resolution has begun, differing from previous efforts in clarity of mechanisms, enhanced regulatory collaboration, and targeted approaches.  
- The issuance of replacement bonds has accelerated, with over 20 trillion yuan issued between November and mid-December 2024, featuring longer maturities and a focus on economic development.  
- The ongoing debt resolution aims to alleviate pressures on local governments and support key industries, with expectations for further bond issuance in 2025 to improve corporate cash flow.

This round of debt-for-equity swaps: three differences, three characteristics