Huxiu: The equity market is the only channel for clearing local government debt

[[**The key to clearing local government debt lies in establishing an equity market for public assets, using tools such as REITs and RWA to securitize heavy assets like infrastructure and restore their liquidity; otherwise, the debt will fall into a Ponzi cycle.**

**Key Points**

**1. The root of local debt lies in the inability to monetize assets**

The government borrows money from banks to build roads and bridges, creating illiquid assets; when repaying debt, banks accept only cash, so an equity market is needed to convert those assets back into liquidity. If this is not solved, the only option is to borrow new money to repay old, and accumulating interest leads to a Ponzi cycle.

**2. The value of public goods is embedded in land, and the disappearance of the land market triggers the crisis**

The government does not directly profit from building roads and schools; their value shows up as rising surrounding land prices. In the past, loans were repaid by selling land (the primary market); after urbanization ended, the land market structurally disappeared, and the local government debt crisis broke out accordingly.

**3. The secondary real estate market must overcome three major obstacles**

Second-hand home transactions have already surpassed new homes, but the problems hindering liquidity include: fragmented property rights that are hard to aggregate, rigid planning that restricts changes of use, and high transaction valuation costs. The direction for solutions: aggregate property rights, allow flexible planning with supplementary fees, and use AI automated valuation to lower transaction costs.

**4. REITs and RWA provide a feasible path for pricing public assets**

The difficulty of charging for public assets (such as the parking space case) can be solved through transparent distribution (for example, fees paid directly into residents' pension accounts). Technology lowers the cost of collection, making it possible to price every road. Through REITs and tokenization (RWA), heavy assets can be split into small-denomination shares for trading; the tokenized office building in Causeway Bay, Hong Kong, selling out in 72 hours is proof; projections show that every 1% increase in REITs valuation can unlock 3-4 trillion yuan.

**5. Restoring asset liquidity can directly boost domestic demand**

Compiled from remarks at the Urban Renewal Grand Asset Management Annual Conference held in Qingdao on September 20, 2026.

Hello everyone.

Today's forum is themed "Grand Asset Management." I would like to take a different angle—not from the perspective of enterprises, but from the perspective of the government—and talk about what grand asset management means for the government, especially what it means for local governments' public debt.

Because the development of asset management cannot be separated from the broader environment—whether there are enough exit tools determines whether assets can flow, and only then does asset management have room to develop. This broader environment can only be provided by the government. We must make the government feel that it is useful and important, so that it has the incentive to create such a market environment.

What is the government most concerned about right now? Not these corporate asset issues, but public debt. So the topic I want to discuss today is: what exactly is the relationship between the real estate equity market and public debt?

1 The formation of public debt

The logic behind the generation of local debt is actually very simple: the government first borrows the most liquid asset—money—from banks, and then converts it into illiquid assets—roads, bridges, houses, factories. On March 15, 2002, at a press conference during the Fifth Session of the Ninth National People's Congress, Zhu Rongji, when asked about government debt, replied that his government would "leave the next government not only debt, but also more than 2.5 trillion yuan in high-quality assets, which will play a huge economic and social benefit in China's future economic development over the long term."

But the problem arises when it is time to repay: you cannot return a bridge or a factory to the bank; the bank does not want these physical objects. What the bank lent you was money, so it can only get money back. So the key is that we need an equity market to turn these assets that "will play a huge economic and social benefit in China's future economic development over the long term" back into liquidity, and then return the liquidity to the banks.

If there is no equity market that reasonably values public assets, the government can only restore asset liquidity in a market with undervaluation—that is, the "smash the pot and sell the iron" approach that was popular in the previous stage. What does "smash the pot and sell the iron" mean? A common example is a pawnshop—pledging something of high value at a very low price in exchange for liquidity. Obviously, it is impossible for the government to repay its huge debts by smashing the pot and selling the iron.

If money is regarded as the blood of the economy, then there is no problem when it flows out from the heart (the banks); the arteries are fine. The problem lies in the veins—money turns into assets, but cannot go back.

Therefore, the solution to the debt problem is very clear: through the equity market, these assets that "play a huge economic and social benefit over the long term" must be converted back into liquidity (commonly known as "securitization"). Otherwise, the government can only pass the debt on to the next government by borrowing new money to repay old or by extending debt maturities. And as long as the interest on the debt is positive, this transmission is bound to be a Ponzi cycle that continuously accumulates more debt, and the debt still cannot be cleared.

2 Pricing of public goods

If it were an enterprise, it could exit through an equity market such as stocks. For example, Masayoshi Son invested in Jack Ma and provided a sum of liquidity; he also needed an exit channel—Jack Ma could not hand over all of Alibaba to him, but he could return the money to Son by listing on the capital market. Revitalizing urban public assets requires the same path.

Why can't public debt be cleared in traditional equity markets (such as the stock market and bond market)? The root cause lies in the unique pricing mechanism of public property. Roads, bridges, subways, stations, airports, parks, schools, and hospitals built by the government are not profitable in themselves and may even require subsidies. Where is the value of these investments reflected? In the land—once a road is built, the surrounding land appreciates; once a school or hospital is built, land prices rise. Although public facilities cannot directly make money, their value is all embedded in the land. Therefore, the local government's equity market is essentially the primary land market.

Why did China develop so fast in the past? Because the primary land market was in the hands of the government: money was borrowed from banks, and it could be repaid to the banks by selling land, so the banks were not worried that the government would fail to repay. But now urbanization is basically over, everyone has a house, and if you sell land again, who will you sell it to? After 2021, this equity market suddenly disappeared. Note that this is not a cyclical fluctuation, but a structural change. The local government debt crisis broke out accordingly.

Some time ago, an official fell from power, and he said: "The money borrowed by the people before, why should I repay it?" It did not occur to him that his predecessor also left him assets—roads and bridges did not exist before, but now they do; schools and hospitals did not exist before, but now they do. These are assets. The task of your term is to turn these assets back into money. The assets China has accumulated today are extremely huge, perhaps rare in human history. If they can be turned back into liquid money, repaying the debt will be no problem at all.

But the current problem is that after the real estate cycle ended, the local government's equity market in land also disappeared—it is impossible to discount the "huge economic and social benefits" Zhu Rongji spoke of to today for repaying the loans borrowed back then.

Since local governments cannot go bankrupt, they can only borrow new debt to repay old debt through special debt arrangements by the central government. So everyone can see that the total amount of money is very large now, but why does everyone feel there is no money? Because the money created by these new debts is locked up by the debt of stranded assets. If debt does not become liquidity, new debt must be used to cover old debt.

Can we refrain from borrowing new debt to repay old debt or extending debt maturities, and instead use existing liquidity to repay debt? If that really happened, the market that is already short of liquidity would immediately dry up, the social division of labor would quickly disintegrate, large-scale unemployment could trigger a chain of social crises, and economic and social risks would be sharply amplified. Those suggestions that rely on the market to "really clear" are essentially treating illness by waiting for death.

Therefore, the government must build an equity market that prices public assets as soon as possible.

3 Equity Market 1: Secondary Real Estate Market

In the stock era, where is the value of the government's public services reflected? First of all, it is reflected in the appreciation of houses. The end of the primary real estate market (IPO) does not mean the end of transactions in existing real estate. According to the latest statistics from the Ministry of Housing and Urban-Rural Development, the transaction volume of second-hand houses has now exceeded that of new houses. As long as this market can continue to appreciate, the government can extract the share belonging to public goods from transactions in existing real estate, and can likewise price existing assets and public services.

This is also why the wrong policy of suppressing housing prices has caused such a severe debt crisis. Therefore, since last year the central government has required that housing prices must "stop falling and stabilize"—if housing prices do not stop falling, the appraised value of all completed assets will continue to shrink, the market will have only sellers and no buyers, and public goods with huge liabilities will have no way to be priced. Reversing expectations of falling housing prices is the prerequisite for reconstructing the equity market in the post-real estate era.

In addition to the macro environment, the current second-hand real estate market still has several basic problems that constrain the full valuation of assets.

First is the lack of property rights. Many old houses were originally of high value, but there are many rights holders: the property right is yours, the disposal right is his, and the income right belongs to another person. If several people cannot agree, the house simply rots there. Property rights must be consolidated under one entity, and only then can this entity carry out renewal and bring the benefits of the asset into full play.

Second is planning rigidity. A piece of land was originally a factory, and the surrounding area is now schools and hospitals. To reflect its value, it must be converted into housing or commercial use. But under the current planning, the use cannot be changed—planning that should have helped land appreciate has now instead become an obstacle to land appreciation. Adjustment of planning should have been a tool for the government to realize the appreciation of public services and assets, but now it has become an obstacle. Similar is the issue of property rights terms: this land has appreciated, but only two or three years remain on the property rights. Tell me, how am I supposed to change it? Even if it is a good asset, it cannot be used.

The direction of the solution is, first, to consolidate property rights, and second, to make planning flexible. But planning adjustment is not something that can be changed at will; rather, every change—extension, change of use, increase in floor area ratio—must at the same time involve paying a corresponding fee to the government. Only in this way can the government's returns be reflected and the value of public assets be assessed. This income stream with cash flow can also be used in the capital market for ABS and REITs. Only when the government has cash flow can it repay debt.

A latest case is Shanghai Hong Kong New World Tower: through a 20-year extension of land use rights, the book value of the asset is about 2.168 billion yuan, and the appraised value reached 4.568 billion yuan, an appreciation rate of nearly 111%. An important factor in the appreciation is precisely the extension. In contrast, when the project acquired the land in 1994, the land transfer fee was only about 98 million yuan (US$11.25 million). This time, the estimated supplementary land transfer fee and taxes for the 20-year extension are about 1 billion yuan, about 10 times the original land acquisition cost that year. The appreciated portion is the valuation of the new public services added by the government over the past 20 years.

The third problem is valuation cost. The most troublesome part of second-hand housing transactions is valuation: the seller values it high, the buyer values it low, and it is very difficult to close a deal. I have recently been advocating: if the information in property rights registration is sufficiently complete, AI can completely generate market valuations automatically based on real-time transaction data.

Now selling a house still requires hiring an appraisal company and paying a large appraisal fee; in the future, you just click into the system and the algorithm gives an upper and lower bound, and the two parties transact within that range. The same goes for mortgages—hiring an appraisal company again for a small mortgage is a completely unnecessary cost. This step is very important for reducing transaction costs and getting the secondary market to flow. Experience from the stock market shows that as long as the transaction scale is large enough and the transaction frequency high enough, trading in small real estate interests can also generate enormous public tax revenue.

4 Equity Market 2: REITs

The second tool for securitizing public assets is REITs. The REITs path is very clear: first find existing assets, then give them a cash flow; as long as there is cash flow, the asset can obtain a valuation in the capital market. In theory, any asset with stable cash flow can be valued through the REITs market.

For public assets, the real difficulty lies in the second step—finding cash flow for public assets, especially for public goods such as roads, bridges, water, electricity, and public transportation. How should they be charged? This is the real stumbling block.

Everyone knows the Nanning example. Nanning packaged all the city's public parking spaces and handed them to Huibo Company to operate. Huibo pledged the parking fee collection rights for the next 25 years as collateral and obtained a bank financing quota of up to 7.209 billion yuan—according to calculations at the time, quite considerable cash flow could be collected every day. The result was a public outcry: people believed that public goods should be free or low-priced, and by what right was money being charged for "just drawing a few boxes on the roadside"? In the end, the mayor made a public self-criticism, the charges were withdrawn, and the company was suspended for rectification. This is a typical sample of the difficulty of charging for public goods.

But note that we should look at this problem more deeply.

First, tolls such as road tolls and bridge tolls must absolutely not be casually eliminated. In some places, in order to please the public, expired bridge tolls and expressway tolls were eliminated—from the day they were eliminated, the asset immediately became a negative asset: originally it could generate cash flow, but now other cash flow has to be used to support it.

Second, it must be recognized that taxes and charges (non-tax revenue) are equally tools for pricing public services. Why don't cities directly charge public service fees? Because a city cannot set up toll stations everywhere; if you charge once for every road you pass, the city cannot function. So cities found an indirect method: instead of directly charging service fees, they generally levy taxes on economic activity within their jurisdiction—regardless of whether you use this road or not, as long as there is economic activity, you pay tax, parks are free, and schools and hospitals are subsidized by fiscal funds. But this is essentially an imprecise form of charging.

When taxes cannot be increased, how should newly added public services be priced? They can only be directly charged. So do not treat any mention of charging as "arbitrary charges" by local governments—when the services provided by the government are not reflected in taxes, they must be priced through charges.

Third, technology has already changed the cost structure of charging. In the past, pricing roads was very costly—after all, you cannot charge once every two hundred meters a car drives on it. But now it is entirely possible to install a "water meter" on every road in the city: what time you got on the road, how many minutes you drove, whether it was peak or off-peak, the system knows it all. On this basis, roads can be priced: what the price is from what time to what time, how much during congested periods, how much during idle periods. The cost of pricing has dropped to an extremely low level, so there is no need to shift it into taxes—people who use the road pay for the road, rather than making both those who do not use the road and those who do use it pay taxes together to cover this public good.

In addition, there are some public goods that the government indeed cannot directly charge for, such as schools, parks, and government office buildings. But there are ways: the government hands school assets to a property management company, purchases property services from it every year, and pays it two million; this company then has cash flow and can use that two million to raise financing in the REITs market. In theory, the government can assign cash flow to any asset—carve out a portion from taxes to pay for it, and then use it as a platform to raise financing in the capital market. A large part of the U.S. government's tax revenue is originally used to repay debt and pay interest. Its essence is "financial leveraging."

When people oppose charges, it is often not the charge itself they oppose, but not knowing where the money goes. Take parking fees as an example again: if people were told that this money did not go into government finances, but was directly deposited into everyone's personal pension accounts—even people who do not drive would get a share. You did not park, but those who parked paid a sum of money for you and it went into your account; would you oppose that? After all, drivers are ultimately a minority in the city. The government, meanwhile, can save the portion of taxes originally used to cover pension and social security shortfalls and take it to the capital market for collateralized financing. Once the revenue and expenditure channel is changed, public goods have a price, the public does not feel the "pain," and the assets also have value.

Here is a specific calculation. The Duku Highway is currently free, and during the 2025 opening period traffic reached 3.7 million vehicles. If 1,000 yuan were charged per vehicle—four people per car, only 250 yuan per person—that would be about 3.7 billion yuan in cash flow a year; while the operation and maintenance cost of this highway is reported to be only 30 million to 66 million yuan a year. Even if charging causes traffic volume to shrink substantially, the cash flow would still be enough to cover costs. Calculated on the basis of 3.5 billion yuan in net operating income, under the domestic REITs market environment, the reasonable valuation of this highway would be roughly between 43.7 billion and 77.7 billion yuan—the debt owed from construction back then could be covered by a single financial statement, and this road would be revitalized. If this money is not charged, this asset will never have value.

5 Equity Market 3: The "Stock Market" for Real Estate

The third is the equity market, which draws on the ideas of the stock market. The most remarkable thing about the stock market is this: many companies are not profitable at all, and some, like Musk's companies, even have negative cash flow, yet the market can still assign them valuations of tens of billions or hundreds of billions—and its threshold is extremely low, so anyone can participate. What about real estate? A home easily costs several million or even tens of millions, and a slightly larger asset easily costs billions; the underlying asset is simply too large, which is itself an obstacle to liquidity. So what we need is a "stock market" specifically for real estate.

Here we need to break down one notion. I fully support "housing is for living, not for speculation," but the lesson of Shenzhen's "Shenfangli" is worth thinking about again. Shenfangli had people pool their money to buy a home together, and then each exit after the home appreciated—you do not live in it, nor do you collect rent; you merely share in the appreciation. Isn't that just buying a stock? The stock market started out the same way: people traded with one another under a big tree, and at first it was all illegal and rule-breaking, with no telling how many incidents occurred, and only later came the CSRC and regulation. The significance of Shenfangli is somewhat like Shenzhen's "first land auction" at the beginning of reform and opening up: in the incremental era, Shenzhen blazed a bloody trail; in the stock era, Shenfangli also blazed a bloody trail. The only difference is that Shenfangli was slapped to death. Shenfangli was of course illegal, but did it contain anything reasonable? "Housing is for living, not for speculation" cannot simply be extended to non-self-occupied real estate—commercial land, offices, hotels—can the reasonable parts of it be reformed and turned into standardized equity trading?

There is an almost identical story in financial history. John Law pioneered credit money in France—issuing currency on credit rather than anchored to physical goods—and the result was the Mississippi Bubble: the French stock market crashed and left a mess, and for more than a hundred years afterward, when French people mentioned banks or credit money, it was like mentioning a flood or a beast. This was later taken up by Hamilton: at the founding of the United States, there was no gold, no physical anchor, only a pile of bad debt that could not be repaid. Hamilton transformed this unsupported debt into the credit-money foundation of U.S. Treasury bonds and the dollar—U.S. Treasuries suddenly became the best asset in Europe, Europeans scrambled to buy them, foreign capital poured in, and the economy took off. The divergence in the fates of the United States and Europe began with the equity market for money. John Law did one wrong thing, but by removing the wrong parts and reforming them, it became Hamilton's U.S. Treasuries and the dollar.

Today we stand at the same juncture. New tools such as RWA (tokenization of real-world assets) use distributed ledger technology to greatly reduce transaction costs and can split extremely heavy assets into extremely small shares, traded like stocks. Housing is for living, not for speculation; we do not speculate in housing. But with this tool, the channels for investment and exit are greatly broadened—you know how the money is invested and in which market it exits, and the asset's valuation is visible in real time in the market, on the premise that the operator does not lose control.

This is not empty talk. Hong Kong already has a successful example: an office building in Causeway Bay valued at HK$2.9 billion was split into 1 million tokens, each costing more than HK$1,000, and sold out within 72 hours of launch—the market immediately found the price of this building, and thereafter the tokens trade in the market; the better it is operated, the more the price rises, and the asset's value is reflected in real time on everyone's balance sheet.

This is not yet permitted in the mainland, but we have simulated an actual case: a building valued at 7.5 billion yuan, with construction costs of more than 4 billion yuan, still short of funds to complete and left stranded in the owner's hands; a Singapore buyer offered 3.5 billion yuan, which would not even recover costs, and no deal could be reached. Our plan is: turn this building into an SPV, split it into 7.5 billion tokens at 1 yuan each; take out one-tenth and have a strong state-owned enterprise act as market maker to issue at 1.5 yuan. If the market accepts this price, the valuation of the whole building rises to more than 11 billion yuan, and the expectation of appreciation will attract a large number of investors to subscribe; the funds raised complete the subsequent construction and ultimately realize the true value of 7.5 billion yuan. With this tool, heavy assets that previously could not be revitalized are revitalized.

6 Conclusion: Without an equity market for public assets, there is no solution to local debt

The government is in fact very anxious now. Hubei Governor Li Dianxun's promotion of "three assets, three transformations" in Hunan and Hubei reflects the urgency of local governments in resolving debt: all state-owned resources should be made into assets as far as possible—any resource must have cash flow to be turned into an asset; all state-owned assets should be securitized as far as possible—all cash flows must be able to exit through the equity market; all state-owned funds should be leveraged as far as possible—when the government collects 100 yuan, it must know how to use 20 yuan to pay interest and thereby leverage debt financing. And each of these three requires an equity market to support it.

Last year's Central Economic Work Conference made expanding domestic demand the top priority for this year, but looking at the first half of the year, both investment and consumption fell. One important reason is that government debt has frozen a large amount of funds that could otherwise have been used for consumption. At the Tsinghua PBCSF Chief Economists Forum in September 2026, Yao Yang pointed out that the "triangular debt" that is truly choking the economic cycle and causing cash-flow strain for enterprises—of which the government's arrears to construction contractors, materials suppliers and others amount to about 30 trillion yuan—and that is only the figure for enterprises above designated size. A large part of the reason the government is in arrears is its own debt pressure. If the government could value its assets through the equity market, the vast majority of these IOUs could be repaid. In 2025, China's total retail sales of consumer goods reached 50.12 trillion yuan. If the 30 trillion yuan in government arrears could be repaid gradually, China's consumption could immediately move up to a new level, and the task of expanding domestic demand would have something to grasp. This would be far more effective than any stimulus policy such as handing out cash, consumption vouchers, tax cuts or topping up social security, and would have far fewer side effects.

After the end of the land finance era, vast amounts of assets have been locked up: in the banks, the money appears as debt; in the government's hands, it appears as physical assets. REITs and RWA are precisely the keys to unlocking this dilemma. We have estimated that, on the current basis, every one-percentage-point rise in the valuation of REITs and RWA could unlock 3 trillion to 4 trillion yuan of value; if the level of the United States were reached, the corresponding figure would be tens of trillions. At present, the total market value of the A-share market is about 120 trillion yuan, while the total market value of assets including real estate is about 300 trillion to 400 trillion yuan—and that is after prices have already shrunk by a quarter to a third. Even if only half of that were securitized or tokenized, the scale unlocked would be equivalent to creating another A-share market; if it continued to appreciate, it might even rival the US stock market. By then, China's wealth and China's pricing would both have found their footing.

Solving the dilemma of the Chinese economy does not require a bewildering array of policies. Grasp the key and everything else follows—in fact, it comes down to six words: restore the liquidity of assets. Our task now is not to invest in more new assets, but to turn existing assets back into money with liquidity. Large asset management must be placed in this context to solve the government's problem—the government must be told: without large asset management, these assets are a dead end. The government must establish as quickly as possible an equity market that prices public assets—one right move and the whole game comes alive: assets invested in back then must be exited through the equity market. Without an equity market, government debt cannot be exited, and no matter how many breakthroughs new quality productive forces make, economic transformation will be absolutely impossible.

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