CHINA approved a six trillion yuan (around £641 billion) plan today to help local governments refinance their debt, in the latest push to stimulate growth in the world’s second-largest economy.

The plan will be implemented over the next three years, Xu Hongcai, vice-chairman of the National People’s Congress financial and economic committee, told a news conference.

Finance Minister Lan Fo’an estimated that the hidden debt of local governments was 14.3trn yuan (£1.5trn) at the end of 2023. In contrast to most Western countries, the bulk of China’s public-sector debt is held by local and provincial government, not by the central government.

Hidden debt refers to debt that has not been disclosed publicly.

Mr Lan said that two trillion yuan would be allocated annually from this year to 2026 to help local governments pay off their debts. He estimated that the amount of hidden debt would drop to 2.3trn yuan (£245 billion) by the end of 2028.

Officials also said that the ceiling for the issue of special bonds would be raised to 35.52trn yuan (£3.80bn) from 29.52trn yuan (£3.15bn) for local governments.

Mr Lan said that the implementation of such a large-scale replacement measure indicated a “fundamental shift” in China’s approach to debt restructuring, adding that the country’s government debt risk was “controllable.”

Local government debts have ballooned partly as a result of high spending to support the population during the Covid-19 pandemic. The government also needs to make finances available for its policy, announced earlier this year, of getting provincial and municipal governments to buy up empty properties and turn them into social housing at controlled rents.

The economy has shown positive signs in recent months. Subsidies offered to people who trade in old cars or appliances for new ones helped car sales grow in September. A survey of manufacturers turned positive in October and exports surged by 12.7 per cent last month, the largest increase in more than two years.