Recent policy changes by the National Association of Financial Market Institutional Investors (NAFMII) to tighten the issuance terms for bonds have drawn market attention. With the critical deadlines of end-June 2027 and end-2028 approaching, local government financing vehicles (LGFVs) that currently issue short-term instruments like commercial paper (CP) and super & short-term commercial paper (SCP) with maturities of around one year could face significant refinancing pressure by June 2027. This analysis examines the overall maturity pressures on LGFV bonds by type and identifies which entities are under the most strain from short-term debt.
Approximately 30% of LGFV Bonds to Mature Before End-June 2027
As of July 8, 2026, the total outstanding bonds for LGFVs across the market amount to approximately RMB 17.25 trillion. The scale of bonds maturing or with put options exercisable before end-June 2027, end-June 2028, and end-December 2028 are RMB 4.97 trillion, RMB 8.23 trillion, and RMB 9.70 trillion, respectively, accounting for 29%, 48%, and 56% of the total. Using the narrower definition of "Quasi-LGFV I," the outstanding bonds are about RMB 11.05 trillion, with RMB 3.37 trillion (31%) maturing or exercisable before end-June 2027.
LGFVs typically issue new bonds to repay old ones within the same market—either the exchange market or the interbank market (NAFMII)—and rarely cross-market for repayments. The scale and proportion of NAFMII products maturing before the three key dates are notably larger. NAFMII product maturities before end-June 2027, end-June 2028, and end-December 2028 are RMB 2.7 trillion, RMB 4.3 trillion, and RMB 5.0 trillion, representing 34%, 54%, and 63% of their respective totals, all exceeding the proportions for exchange-traded products.
Focus on Entities with Lower Implied Ratings and High Short-Term Debt Ratios
If LGFVs are required to issue bonds with maturities of two years or more for refinancing, effectively pausing the issuance of short-term instruments like CP and SCP, the impact on high-quality, high-grade issuers would be minimal. The primary concern lies with weaker entities forced to extend their issuance terms, potentially facing refinancing challenges and widening maturity spreads.
The analysis first focuses on entities with an implied rating of AA(2) or lower and with over 50% of their debt maturing within six months. Secondly, it examines weaker entities that have relied heavily on issuing short-term debt (within one year) since 2024.
As of July 8, 2026, there are 1,879 LGFVs with outstanding NAFMII products. Among them, 127 lower-rated entities have over 50% of their debt maturing within six months. Of these, 39 have outstanding NAFMII product balances of RMB 2 billion or more, primarily located in Kunming (9 entities), Taizhou (4), Yangzhou (3), Chongqing (3), and Wuhan (2).
For these 127 lower-rated entities, the weighted average valuation for bonds maturing within one year is 1.69%, compared to 1.97% for bonds with 2-3 year maturities. If the issuance of NAFMII products with maturities under one year is restricted, forcing a shift to 2-3 year tenors, the average issuance cost for these issuers could increase by approximately 28 basis points. For the 39 entities warranting closer attention, some issuers might see their financing costs rise by over 40 basis points.
Furthermore, weaker entities that have issued a high proportion of short-term debt (within one year) since 2024 also merit attention. The low-interest-rate environment following debt restructuring has provided favorable conditions for LGFVs to issue longer-term bonds and adjust their maturity structures. If an entity has still primarily issued short-term debt since 2024, it may indicate poor market recognition and difficulty in issuing longer-term bonds. Consequently, if short-term debt issuance is subsequently restricted, such entities could face significant refinancing pressure. A selection of entities with implied ratings of AA(2) or lower, outstanding bonds exceeding RMB 2 billion, and over 60% of their issuance since 2024 having maturities under one year has been identified for investor reference.
Risk Warnings: Potential for unexpected adjustments in monetary policy; unforeseen changes in market liquidity; and credit risk exceeding expectations.
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