Chinese Premier Li Qiang chaired a State Council Executive Meeting on September 28 to study efforts to enhance the effectiveness of macro policies and promote effective investment. The meeting explicitly called for “making good use of the local government debt carryover quota,” which markets interpreted as a clear policy signal that additional local government bonds will be issued in the fourth quarter. Wen Laicheng, a professor at the Central University of Finance and Economics, said this means local governments will issue an additional tranche of bonds before year-end, within the quota approved by the National People’s Congress, to bridge local fiscal gaps and support economic growth.

This marks the fourth consecutive year—following 2022, 2024, and 2025—that the central government has tapped the local debt carryover quota in the fourth quarter. Compared with previous rounds, this year’s policy backdrop is more complex: fixed-asset investment has declined year-on-year for five straight months, local government fund revenue has shrunk sharply due to falling land sales, and the tension between local fiscal revenue and expenditure is pronounced.

How Large Is the Carryover Quota?

The local government debt carryover quota refers to the gap between the statutory debt ceiling approved by the National People’s Congress and the actual outstanding debt balance. According to China’s Ministry of Finance, as of end-2025, the nationwide outstanding local government debt balance was 54.8231 trillion yuan (approximately $8.2 trillion), against a ceiling of 57.9874 trillion yuan (approximately $8.6 trillion), leaving a carryover quota of about 3.1643 trillion yuan (approximately $471.8 billion).

But not all of this roughly 3.2 trillion yuan is available. Under prior official arrangements, 2 trillion yuan has already been designated for issuance this year to swap existing hidden debt. After deducting that portion, the actual usable carryover quota this year is around 1 trillion yuan.

Wen Laicheng estimates that, referencing the scale of previous rounds—500 billion yuan in 2022, 400 billion yuan in 2024, and 500 billion yuan in 2025—the amount tapped in the fourth quarter this year will likely be around 500 billion yuan (approximately $74.5 billion), and will not exceed 1 trillion yuan.

The Reality of Local Fiscal Strain

In deploying incremental policies, the State Council Executive Meeting stressed the need to “optimize fiscal expenditure arrangements and make good use of the local government debt carryover quota,” while also calling for “comprehensive use and timely adjustment of monetary policy tools, increasing relending quotas for technological innovation, technological upgrading, and support for agriculture and small businesses,” and for studying policies to stabilize the real estate market and promote employment and income growth.

The strain on local finances is evident in the data. Ministry of Finance figures show that in the first eight months of this year, local general public budget revenue at the same level reached 8.6515 trillion yuan (approximately $1.3 trillion), up 3.1% year-on-year. However, dragged down by persistently declining land sales revenue, local government fund budget revenue at the same level was only 1.8127 trillion yuan (approximately $270.3 billion), down 22.9% year-on-year. The contraction on the revenue side directly suppressed spending, with local government fund budget expenditure at 4.8773 trillion yuan (approximately $727.2 billion) over the same period, down 11.3% year-on-year.

Luo Zhiheng, chief economist at Yuekai Securities, said the State Council Executive Meeting demonstrated a highly precise assessment of the current economic situation, focusing on stabilizing investment and expanding demand while also emphasizing forward-looking planning for consumption-boosting measures, which should help lift economic growth in the fourth quarter.

Accelerating Implementation of Existing Policies

The meeting’s requirements for existing policies were equally urgent, calling for “intensified efforts to ensure all policies are implemented and take effect, further enhancing the effectiveness of existing policies, and accelerating the pace of bond issuance and utilization,” while pushing for major engineering projects under the “15th Five-Year Plan” and the “Six Networks” implementation plan to begin construction as early as possible, and advancing the renovation and upgrading of aging reservoirs and grain depots.

Data from corporate early-warning platform Qixin Tong show that as of September 29, China had issued approximately 8.8 trillion yuan in local government bonds nationwide, of which new bond issuance totaled about 4.2 trillion yuan, accounting for roughly 80% of the full-year new local bond quota of 5.2 trillion yuan set at the start of the year. About 1 trillion yuan in new local bonds remain to be issued.

Pang Ming, a member of the China Chief Economist Forum, noted that compared with previous meetings, this one placed greater emphasis on policy transmission efficiency and the formation of physical work volume, signaling that policy adjustment intensity will be further strengthened. The current policy focus is on improving fund disbursement rates, project commencement rates, and policy conversion rates, in order to quickly form a positive cycle of investment, employment, and consumption.

Zhong Huiyong, an associate researcher at Shanghai Jiao Tong University’s Antai College of Economics and Management, pointed out that the core bottleneck in bond fund utilization is no longer primarily on the issuance side, but rather in the insufficiently smooth conversion of funds into projects and projects into physical work volume. He recommended further optimizing the reserve of mature projects and dynamic reallocation mechanisms, prioritizing funds for projects that have already completed preliminary work, while strengthening the linkage between special bonds, fiscal funds, and policy-based finance.

Incremental Policies Focus on the Demand Side

On incremental policies, the State Council Executive Meeting unusually placed “stabilizing the real estate market” and “promoting employment and income growth” side by side. Yan Yuejin, vice president of the Shanghai E-House Real Estate Research Institute, said this suggests a series of policies may be rolled out in the fourth quarter, particularly in October.

Pang Ming analyzed that the separate mention of stabilizing the real estate market and promoting employment and income growth indicates that the next phase of policy will focus more on demand-side repair and relief for key sectors. Incremental policies will place greater emphasis on being pragmatic, effective, precisely targeted, and structurally optimized.

Zhang Yi, chief economist at Financial Street Securities, said incremental policies are primarily aimed at supplementing fiscal resources and unblocking financing and demand transmission. From a budget perspective, some additional funds may first be used to make up for revenue shortfalls and maintain originally planned spending levels, while bond financing still has room for continuation.

As for allocation, last year’s distribution plan for the 500 billion yuan local debt carryover quota may offer a reference: 300 billion yuan (approximately $44.7 billion) was used to supplement local governments’ comprehensive fiscal resources, supporting the resolution of existing government investment project debt and the clearing of government arrears to enterprises; 200 billion yuan (approximately $29.8 billion) was used to support eligible project construction in economically strong provinces. In terms of issuance pace, last October saw various regions successively receive quota allocations from the Ministry of Finance, with November entering an intensive issuance period.

Zhong Huiyong believes the fourth-quarter priority should be making fuller use of existing fiscal resources, with three specific areas to tap: first, accelerating budget expenditure and bond fund utilization; second, activating the local government debt carryover quota and existing fiscal funds; and third, adjusting the expenditure structure to shift more funds toward stabilizing employment, boosting consumption, livelihoods, and effective investment. “What matters more now is improving the multiplier effect of fiscal funds, not just looking at the scale of new funds.”

Policy Reserves for Boosting Domestic Demand

The meeting also called for “continuing to study and reserve policy measures to boost domestic demand, planning more work initiatives with strong driving effects, improving supporting measures, and encouraging localities with the conditions to pilot first.”

National Bureau of Statistics data show that in August, total retail sales of consumer goods reached 3.9824 trillion yuan (approximately $593.8 billion), up 0.4% year-on-year, with the growth rate declining for two consecutive months. From January to August, national fixed-asset investment (excluding rural households) totaled 29.3092 trillion yuan (approximately $4.4 trillion), down 7.2% year-on-year, marking five consecutive months of negative growth.

Pang Ming expects that subsequent reserve policies will likely further expand around boosting domestic demand. On one hand, consumption potential will be unleashed through promoting resident income growth, expanding service consumption, and supporting big-ticket consumption; on the other hand, effective demand will be expanded through new policy-based financial instruments, major infrastructure construction, and investment in new quality productive forces.

Luo Zhiheng said there remains ample policy room and a sufficient toolkit for the next phase. The advantage of fiscal space lies mainly in the current low interest rates, low inflation, and fiscal-financial coordination, with central government fiscal space still considerable. Monetary policy, especially structural monetary policy, still has ample room. Industrial policy is fully promoting the construction of a unified national market and accelerating the development of high-tech industries such as artificial intelligence and robotics, and industrial stability is conducive to economic stability.

On monetary policy coordination, Zhong Huiyong believes there is still some room for reserve requirement ratio cuts, and interest rate cuts are not out of the question, but subsequent policies will pay more attention to the timing of implementation and transmission effects. Current social financing costs are generally at historically low levels. In the next phase, monetary policy should not focus solely on further reducing the price of funds; more importantly, it should unblock the transmission mechanism, improve effective financing demand, and truly convert accommodative financial conditions into investment, consumption, and real-economy demand.

From a policy timing perspective, the fourth quarter will be a critical window for observing the effectiveness of incremental fiscal policy implementation. The scale and allocation of new local bond issuance, the efficiency of converting special bond funds into physical work volume, and the pace of supporting policies in the real estate and employment sectors will collectively determine the quality of completion of the year’s economic and social development goals and tasks.