Media reports now suggest that China is looking to help local governments with over USD 1trn of bills. Why? Despite an easing of financing costs, local government financing is still strained due to a weak property market and slower land sales. Our DACS index for China LGFV USD bonds has widened more than our aggregate China DACS index since mid-2024, reflecting higher credit costs for LGFVs. The gap between LGFV spreads and average Chinese spreads is now quite wide at over 140bps, and double that of the 2017-2023 average. Given this persistent spread gap and the lack of a pick-up in property-related revenues, central government support looks necessary for LGFVs' financing costs to ease back to previous norms.

Unquestionably, the scale of China's LGFV debt is large, and so would be the required help. The IMF's Financial System Stability Assessment (FSSA) published in April estimates China's total LGFV debt to be USD8trn (47% of GDP). The Fund also estimates that 39%-46% of these LGFV debt would need restructuring to restore debt servicing capacity, which implies that there could be around USD3trn of high-risk LGFV debt outstanding. To restore debt-servicing capacity on the assumption that LGFV debt is perpetually rolled over and not paid down, an additional USD1.24trn (7% of GDP) of debt relief could be needed, based on the IMF's analysis. Thus, speculation of over USD1trn of fiscal relief for local governments looks appropriately sized for Chinese policymakers to put LGFV credit concerns to rest.

DBS Aggregate Credit Spread or DACS indices show the aggregate credit spread, weighted by market capitalization and modified duration, for Asian corporate USD-denominated straight bonds. The higher is the DACS, the higher is the additional yield that can be earned in credit, and the higher is the perception of credit risks in markets.

Our first visual shows the notional outstanding of bonds from five Asian economies that comprise the Asia ex-Japan (AXJ) DACS index. These five economies are China, Hong Kong, Korea, India and Indonesia.

The second visual shows the notional outstanding split into industry sectors for the aggregate AXJ DACS index, and DACS indices for each of the five economies. Individual economies can be selected via the dropdown.

Our last visual illustrates the DACS index readings over time for AXJ or an individual economy. It is also possible to drill into the constituent sectors of the DACS indices using the second dropdown. Such sectoral DACS indices are shown on an individual economy basis when data is sufficient, and on an aggregated AXJ basis when otherwise.