Tianjin has become the latest region to move forward with early debt repayment, following in the footsteps of Beijing and Shaanxi. This strategy is designed to reduce interest expenses. According to public information compiled by financial reporters, Beijing, Shaanxi, and Tianjin have all issued official announcements regarding early bond repayments so far.

The Tianjin Municipal Finance Bureau recently released a notice on the early repayment of a portion of Tianjin municipal government bonds. The plan involves repaying 409 million yuan in face value of the 2020 Tianjin municipal special bonds (the 42nd tranche). This early repayment corresponds to the ancillary construction project surrounding the Tianjin Juilliard School campus. The repayment funds will be sourced from the net proceeds of land sales in the vicinity of the project.

Back in May 2020, Tianjin issued the aforementioned special bonds with a total scale of 1.389 billion yuan, a 30-year maturity, and a coupon rate of 3.77%. Of this amount, 880 million yuan was allocated to the Tianjin Juilliard School ancillary construction project, which includes building the teaching facility, an associated parking garage, a riverside park, and improvements to the surrounding environment. Under the original arrangement, the special bond project for the Juilliard campus would pay interest semi-annually, with the principal of 880 million yuan scheduled for a one-time lump-sum repayment upon maturity in 2050.

The new notice clarifies that 409 million yuan will be repaid ahead of schedule this year. The early repayment funds will come from the net land sale proceeds around the project site. Based on earlier project disclosures from the Tianjin finance authorities, the project's revenue is expected to be generated from the net profits of land sales for 12 nearby plots. These plots are slated for transfer between 2026 and 2030, with an estimated net land revenue of approximately 2.2 billion yuan available for debt servicing.

According to the Ministry of Finance's measures for the issuance and management of local government bonds, local financial departments may adopt various principal repayment methods, including repayment at maturity, early repayment, or installment repayment. This is permitted under the premise of safeguarding creditors' legal rights through market-oriented principles tailored to actual conditions. The National People's Congress has also previously suggested establishing a mechanism for the early repayment of special bond principal.

In recent years, interest rates on special bonds have declined steadily due to various factors. Ministry of Finance data shows the average issuance rate for local government special bonds was 3.44% in 2020, falling to 2.16% in the first seven months of this year. For local governments, the most immediate benefit of early repayment is saving a substantial amount on interest payments and easing financial burdens. For instance, the Beijing Municipal Finance Bureau noted in its review of 2023 fiscal work that Beijing took the national lead in piloting early repayment of government special bonds, reducing interest costs by more than 70%.

Similarly, the Shaanxi Provincial Finance Department repaid 85 million yuan of special bonds for the Baoshi Sewage Treatment Plant construction project in Baoji City ahead of schedule this year, saving the project entity around 33.24 million yuan in interest. Beyond benefiting governments, early repayment can also appeal to certain bond investors. Hu Hengsong, general manager of Cinda Securities, previously told financial media that if financial institutions' holding costs are lower than the bid price set for early repayment, they can achieve a price differential and directly profit. After recovering their principal early, these institutions can reallocate funds into higher-yield or more flexible assets, thereby enhancing capital efficiency.

Since early repayment must strictly protect creditors' legal rights under market-oriented principles, Beijing, Shaanxi, and Tianjin have all adopted a voluntary principle, using competitive bidding to determine the early repayment price. The ongoing decline in special bond issuance rates also highlights the need for local governments to optimize debt maturity structures and select logical principal repayment methods to control financing costs.

A directive issued by the Ministry of Finance in 2021, which took effect that year, requires local financial departments to scientifically design bond maturities by considering factors such as the yield curve construction for local bonds, project duration, financing costs, maturity distribution of outstanding debt, and investor demand. Local debt maturities range from 1, 2, 3, 5, 7, 10, 15, 20, to 30 years. Local governments are permitted to use different repayment methods—including lump-sum at maturity, early repayment, or annual installments—based on their specific situations.

A recent oversight and research report on the management of government debt for fiscal year 2025, released on the NPC website, reveals that the issuance tenor for local government special bonds has been extending. In 2025, the average issuance tenor for special bonds is expected to reach 17.6 years, which is over 11 years longer than the average tenor for government bonds. This trend not only increases interest burdens but also shifts risk further into the future. The report recommends optimizing the issuance tenors of local special bonds to achieve a reasonable allocation across short-, medium-, and long-term maturities.

As the scale of local government bonds, particularly special bonds, continues to grow, the interest expenses for local debt repayment are rising. Ministry of Finance data indicates that in the first seven months of 2026, interest payments on local government bonds reached 897.7 billion yuan, reflecting an approximately 8% year-on-year increase. For the full year of 2025, total interest payments on local bonds hit 1.4843 trillion yuan, an increase of about 9.6% year-on-year.