1 Local gov’ts amplify China’s financial risks in pursuing ‘three assets reform’
Facing mounting fiscal pressure, local governments in the PRC are resorting to “fiscal innovation” in the form of so-called “three assets reform” (三資改革) — assetization of state-owned resources, securitization of state-owned assets, and leveraging of state-owned capital — to generate funds.
Multiple regions rush to emulate Hubei’s ‘three assets reform’
In May 2025, the Hubei provincial government General Office issued the “Overall Work Plan for Deepening the Reform of State-Owned ‘Three Assets’ Management and Advancing the Construction of a Comprehensive Fiscal System” (深化國有「三資」管理改革推動大財政體系建設走深走實總體工作方案). The plan called for converting idle state resources into market-oriented assets and leveraging capital markets to amplify fiscal multiplier effects.
Key points in the work plan include:
- Follow the guiding principle of “assetizing all possible state-owned resources, securitizing all possible state-owned assets, and leveraging all possible state-owned funds.”
- Focus on converting mines, forest land, water conservancy projects, and renewable energy resources (wind and solar) into tradable assets through valuation and balance-sheet recognition.
- Inject assets into multi-tier capital markets and introduce social security funds and institutional investors to participate in pricing to prevent value erosion of state assets.
- Encourage the use of industrial parent funds and similar vehicles to mobilize private capital with limited state funding, thereby expanding the scale of investment.
- Conduct a comprehensive inventory and valuation of six categories of state-owned resources, namely, minerals, forestry, water, energy, land, and data.
- Conduct a comprehensive inventory and valuation of five categories of state-owned assets — physical assets, equity, debt claims, franchise rights, and future income rights — and promote state-owned asset securitization through methods such as utilization, sale, leasing, and financing.
- Conduct a comprehensive inventory and valuation of low-efficiency or idle state funds, which are to be leveraged through financial engineering.
The Hubei provincial General Office gave the following implementation timeline for the “three assets reform” work plan:
- First half of 2025: Complete asset inventory and pilot projects.
- Late 2025 to 2026: Fully roll out securitization and leveraging mechanisms.
- From 2027 onward: Enter a phase of routine supervision and performance evaluation.
Other provincial governments quickly followed Hubei’s suit. Notably, the Anhui provincial government released a work plan in September 2025 for “advancing the coordinated management of large-scale assets” targeting eight categories of assets (including buildings, land use rights, and equity) and five categories of resources (including land, minerals, and water conservancy). The Anhui government plans to activate and monetize these assets through real estate investment trusts (REITs) and asset securitization tools, aiming to unlock a potential 16.48 trillion yuan in state-owned enterprise assets across the province.
Heilongjiang auctions off silt
Following Hubei’s lead, the Heilongjiang provincial government implemented “three assets reform” in its ecological sector. On Aug. 22, 2025, 1.4541 million cubic meters of silt from the Dongfanghong Reservoir in Tieli City was publicly listed for auction on the Heilongjiang provincial Natural and Ecological Resources Exchange Platform. After six rounds of bidding, Hongyuangu Rice (Yichun) Agricultural Technology Co., Ltd. won five-year operating rights to sell silt for 61.03 million yuan, equivalent to 41.97 yuan per cubic meter.
Less than two weeks after the transaction, the buyer Hongyuangu Rice used the five-year operating rights as collateral to secure a 45 million yuan green loan — equivalent to 74 percent of the auction price — from the Heilongjiang branch of a state-owned bank. The Heilongjiang provincial government’s sale of silt selling rights marked the PRC’s first EOD (Ecology-Oriented Development) project for resource utilization of reservoir silt, and was seen by observers as a symbolic shift in local government financing away from “selling land” to “selling silt.”
The “three capitals reform” wave quickly spread to Yi’an County in Qiqihar City. On Oct. 23, the 20-year disposal rights for a combined 11 million cubic meters of silt from two upstream reservoirs were auctioned on the provincial trading platform for 839 million yuan (equivalent to 76 yuan per cubic meter), setting a national record. Netizens discovered that the buyer was Qiqihar Zeyuan Environmental Industry Co., Ltd., a state-owned enterprise registered locally in early October with a registered capital of only 270 million yuan. In an interview with mainland media, the company’s head stated that the silt is rich in nitrogen, phosphorus, and potassium, and can be converted into organic fertilizer and saline-alkali land improver, with an annual potential output value exceeding 100 million yuan.
Mainland media also reported that after the CCP authorities released an opinion on “establishing and improving mechanisms for realizing the value of ecological products” in 2021, the Heilongjiang provincial government took the lead in researching and formulating measures to promote the value transformation of river, lake, and reservoir ecological products, with 791 registered reservoirs in the province.
Background on local gov’ts ‘revitalizing’ state-owned assets
Local governments in the PRC have faced mounting fiscal difficulties since the start of the Sino-U.S. trade war in 2018. Those difficulties worsened during the three years of “zero-COVID” restrictions, resulting in declining tax revenues and a sharp drop in land transfer income.
To ease the pressure on local governments, the central government issued the “Opinion on Further Revitalizing Existing Assets and Expanding Effective Investment” (關於進一步盤活存量資產擴大有效投資的意見) in 2022. The document called for transforming state-owned resources into assessable assets, injecting them into capital markets for circulation, and leveraging social capital through tools like industrial guidance funds to amplify financial impact.
Over the past several years, local governments have frequently supplemented their finances by selling long-term operating rights, ranging from highway franchises to cultural and tourism assets, with similar operations occurring frequently.
Our take
1. Under the immense pressure of fiscal tightening and the demands of localized debt resolution, local governments in the PRC have seized upon the central government’s policy of revitalizing state-owned assets to create “new stories of revitalization” through the so-called “three assets reform.” Unlike “fiscal innovation” of the past, where local governments met funding needs by taking on implicit debt through local financing vehicles, the “three assets reform” leverages the Xi Jinping leadership’s policies of “Beautiful China” and “Green China” to shift liabilities while artificially manufacturing phantom political achievements.
While the “three assets reform” approach could help local governments tide over their funding needs in the short term, it does so at the cost of significantly increasing banks’ non-performing loan risks in the long term.
2. Under the banner of “three assets reform,” the Heilongjiang provincial government has pioneered a controversial fiscal strategy: monetizing reservoir silt through public auctions framed as ecology-oriented development. While state media hails this as a textbook case of “lucid waters and lush mountains are invaluable assets” (綠水青山就是金山銀山), the transactions reveal a sophisticated narrative engineering to extract liquidity from low-value waste.
State media claims that nutrient-rich silt can be converted into organic fertilizer and saline-alkali soil conditioners, extending the green industrial chain and restoring the black soil region’s ecology. In reality, low-value waste (silt that the government traditionally provides subsidies for removal) is repackaged as high-return “green assets” (with expert-backed valuations). The waste is then publicly auctioned through affiliated parties to establish a “fair market value,” securitized, and pledged to banks for loans based on projected future income — so-called “policy-directed green credit.” In short, local governments are engaging in dubious “fiscal innovation” to raise revenue under the pretense of partaking in green finance.
Take the Yi’an County’s silt auction as an example:
- A local state-owned enterprise affiliated with the county government, after winning the public auction, can obtain at least 600 million yuan in green loans.
- The auction benefits the local government in at least three ways — boosting fiscal revenue, fulfilling Xi’s “Beautiful China” and “Green China” directives, and creating outstanding political “success.”
- Meanwhile, the bank meets its green lending quota, creating an illusion of mutual benefit.
- However, the project’s profitability remains uncertain. For instance, the newly registered company still needs to build facilities and equipment, and whether it can generate real returns is unknown.
- But for local officials, the auction brings short-term relief. Banks are unlikely to call in the “green” loans during the tenure of the current officials in charge. Even at maturity, the banks are likely to roll over the loans to avoid recognizing them as bad debts, which could hurt both performance metrics and political evaluations.
Local governments are likely to follow in the footsteps of Hubei provincial government and other local governments which have “successfully” undertaken “three assets reform.” For example, the Tieli City government’s sale of a five-year operating right for the Dongfanghong Reservoir’s silt fetched over 61 million yuan, equivalent to 283 percent of its total 2024 general fiscal expenditure (21.61 million yuan) and 1056 percent of its wage expenditure (5.78 million yuan). The funds generated from the sale undoubtedly helped the Tieli City government with easing its fiscal strain and reducing part of its local debt. It is therefore highly likely that other local governments in Heilongjiang Province will seek to emulate this model, securitizing other dormant state-owned assets — including its 791 registered reservoirs — and pledging future revenues to banks.
3. The “three assets reform” policy is rife with gray areas, providing fertile ground for official corruption. Although Heilongjiang’s silt auctions are promoted on open platforms, they lack third-party audits, allowing officials to manipulate designated buyers, control reserve prices, or offer follow-up subsidies. While the central government’s anti-corruption efforts are strict, local fiscal pressures are likely to turn “green” projects into so-called “protective umbrellas” for corruption. If rolled out nationwide, similar operations could unlock tens of trillions in assets, providing local officials with more opportunities to engage in corruption even as they fabricate “impressive” political “achievements.”
Corruption related to the “three assets reform” could go unnoticed for a long time or until problems stemming from it become serious if the Xi leadership cannot properly discern what is happening on the ground. This is very likely given how Beijing is likely to receive mostly “positive” feedback (due to systemic flaws in the CCP’s authoritarian system) about the latest “fiscal innovation” by local governments. The PRC’s problems will worsen if Beijing makes subsequent erroneous policies on the back of misrepresented local government political “achievements.”
On the current trajectory, China’s local debt crisis will intensify rather than find resolution, while the problem with hidden non-performing loans in the banking system will grow increasingly severe. Beijing will likely continue using the central bank to indirectly purchase government bonds to sustain government operations — until it crosses the critical threshold of excessive credit creation and causes financial risks to spiral out of control.
2 Beijing steps up propaganda, anti-corruption efforts after 4th Plenum
Cai Qi calls for ‘comprehensive strict governance of the Party’
Nov. 3
Party mouthpiece People’s Daily published a signed commentary by Politburo Standing Committee member Cai Qi. Titled “Persistently Advancing Comprehensive Strict Party Governance” (持之以恆推進全面從嚴治黨), the approximately 4,800 character-long article focuses on studying and implementing the spirit of the Fourth Plenum of the 20th Central Committee.
The article’s central theme is that comprehensive strict governance of the CCP is the “fundamental guarantee” for achieving the goals of the 15th Five-Year Plan and advancing “Chinese-style modernization.” The article also stresses that the Party must lead a social revolution through “self-revolution,” and continuously strengthen itself to remain resilient and powerful.
In reviewing the 14th Five-Year Plan period, the article attributes the achievements under the leadership of Party Central with Comrade Xi Jinping at the core during that time to the success of comprehensive strict governance of the Party. The article added that the Xi leadership “opened a new frontier in the self-revolution of a century-old Party.”
The article noted that the “complex” 15th Five-Year Plan period poses new requirements for the comprehensive strict governance of the Party. These include addressing changes in the international and domestic landscape, enhancing leadership capabilities, and resolving prominent issues within the Party.
The article proposes six key measures for advancing the comprehensive strict governance of the Party:
- Uphold the centralized and unified leadership of Party Central.
- Unify thinking with the Party’s innovative theories.
- Adhere to the correct principles for cadre selection and appointment.
- Strengthen grassroots Party organizations, including in emerging sectors.
- Implement Party Central’s Eight-point Regulation and promote better work style and discipline.
- Wage a protracted and decisive battle against corruption.
Senior CCP officials promote ‘spirit of the plenum’
Oct. 27
Cai Qi attended a mobilization meeting of the Central Propaganda Group for “studying and implementing the spirit of the Fourth Plenum of the 20th Central Committee.”
In a speech at the meeting, Cai emphasized the need to comprehensively carry out the propaganda and interpretation work of promoting the “spirit of the Fourth Plenum,” including guiding Party members, officials, and the public to deeply grasp the decisive significance of the “Two Establishes,” strengthen the “four consciousnesses,” fortify the “four confidences,” and achieve the “Two Safeguards.” Cai also urged Party members, officials, and the public to align their thoughts and actions with Party Central’s decisions and deployments.
Oct. 29 – Nov. 5
According to reports from state mouthpiece Xinhua’s dedicated column on the Fourth Plenum of the 20th Central Committee, the first round of the central lecture group’s sessions on “studying and implementing the spirit of the Fourth Plenum” began on Oct. 29. By Nov. 5, a total of 30 senior CCP officials — including 10 Politburo members, two State Councilors, and several Central Committee members at the provincial and ministerial levels — had served as lead speaker(s) at 24 sessions across five central ministries and 18 provinces or municipalities.
Additionally, Xinhua also covered the effort to spread the “study and implementation of the spirit of the Fourth Plenum” in the military. Per Xinhua, the first session in the military to promote the “spirit of the Fourth Plenum” was held in Beijing on Oct. 3. Central Military Commission vice chairmen Zhang Youxia and Zhang Shengmin met with members of the central lecture group and listened to their report during the session, which was conducted via teleconference with over 11,000 officers and soldiers participating.
During the session, Zhang Youxia said that studying, propagandizing, and implementing the spirit of the Fourth Plenum must be treated as a “major political task,” and officers and soldiers must be guided to deeply comprehend Xi Jinping’s important speeches. Zhang added that there was a need in the military to more resolutely and consciously uphold the “Two Establishes.”
Meanwhile, Zhang Shengmin pointed out that propaganda work must be carried out with strong political responsibility. Also, all military officers and soldiers must be guided to profoundly grasp the decisive significance of the “Two Establishes,” enhance the “four consciousnesses,” firm up the “four confidences,” achieve the “Two Safeguards,” implement the CMC Chairman Responsibility System, and truly align their thoughts and actions with the decisions and deployments of Party Central.
Xinhua reported that Zhang Youxia also delivered a report on “studying and implementing the spirit of the Fourth Plenum” at the CMC headquarters as a member of the Central Propaganda Group. In his report, Zhang underscored the need to deeply study and implement Xi’s important speeches and policy directives, as well as consciously align thinking and actions with the “spirit of the plenum.” Zhang added that it is particularly necessary to thoroughly implement Xi Jinping Thought on Strengthening the Military, and formulate and implement well the points in the 15th Five-Year Plan for military development.
CPPCC personnel reshuffles
Nov. 1
The Standing Committee of the Chinese People’s Political Consultative Conference concluded its 14th meeting of the 14th CPPCC. The meeting announced that nine deputy directors of various CPPCC special committees were removed from their post, but retained their positions as CPPCC members or Standing Committee members.
The removed officials were:
- Yi Gang (age 67, former governor of the People’s Bank of China and CPPCC member), removed as deputy director of the CPPCC economic affairs committee (served since 2023).
Zhang Junkuo (73, former head of the National Development and Reform Commission’s Academy of Macroeconomic Research and CPPCC member), removed as deputy director of the CPPCC proposals committee (served since 2013). - Zhang Taolin (79, former president of China Agricultural University and CPPCC Standing Committee member), removed as deputy director of the CPPCC agriculture and rural affairs committee (served since 2013).
- Zhang Jie (67, former vice president of the Chinese Academy of Sciences and CPPCC Standing Committee member), removed as deputy director of the CPPCC education, science, health, and sports committee (served since 2017).
- Cao Weixing (63, former general manager of China Aerospace Science and Technology Corporation and CPPCC Standing Committee member), removed as deputy director of the CPPCC education, science, health, and sports committee (served since 2018).
- Chen Guoqing (71, former secretary-general of the Central Political and Legal Affairs Commission and CPPCC member), removed as deputy director of the CPPCC social and legal affairs committee (served since 2022).
- Wang Rong (68, former deputy director of the NPC Basic Law Committee for Hong Kong and Macau and CPPCC member), removed as deputy director of the CPPCC Hong Kong, Macau, Taiwan, and Overseas Chinese affairs committee (served since 2015).
- Chen Yuanfeng (65, former deputy director of the Central Government Liaison Office in Macau and CPPCC member), removed as deputy director of the CPPCC Hong Kong, Macau, Taiwan, and Overseas Chinese affairs committee (served since 2019).
- Sui Jun (66, former assistant foreign minister and CPPCC member), removed as deputy director of the CPPCC foreign affairs committee (served since 2023).
***
Hong Kong media Sing Tao Daily, citing “insider” sources, claimed that the nine CPPCC deputy directors were removed as part of the CCP authorities’ ongoing crackdown on so-called “naked officials.” “Naked officials” refer to officials whose spouses or children reside abroad (either as permanent residents or citizens) and have or are suspected of transferring their illicit gains overseas in preparation to one day flee mainland China.
The Xi leadership has intensified efforts to crack down on “naked officials” since the 18th Party Congress, including systematically reassigning or demoting such officials.
Financial sector corruption crackdown
Nov. 3
1. The Central Commission for Discipline Inspection and the National Supervisory Commission announced that Wang Jianjun, former Party Committee member and vice chairman of the China Securities Regulatory Commission, has been placed under investigation for “serious violations of discipline and law.”
The anti-corruption authorities accused Wang of “resisting organizational investigation, failing to report personal matters as required, and engaging in “regulatory capture” — that is, profiting from his position as a regulator by helping others in areas such as company listings and financing. The authorities also accused Wang of having illegally accepted large amounts of property and money.
2. Mainland media reported on new developments in China’s financial sector anti-corruption campaign, and in particular, the collective downfall of senior executives at CICC Capital, a subsidiary of China International Capital Corporation.
The reports stated that CICC Capital president Shan Junbao was rumored to have gone missing at the end of October 2025. He oversaw private equity investments and M&A operations, and was regarded as one of CICC’s core executives.
Concurrently, several other senior CICC Capital executives were taken away for investigation in quick succession, including:
- Vice president Li (name withheld), in charge of investment banking.
- Director Wang (name withheld), head of risk control.
- Investment director Zhang (name withheld)
- Other unnamed mid-level managers.
Mainland media described the incident as a “total wipeout” of CICC Capital’s senior leadership, and that it represented another major blow to CICC following the exposure of corruption cases involving several of its executives in 2023.
Mainland media added that anti-corruption efforts targeting China’s financial system have intensified since 2024, with frequent actions by the People’s Bank of China, the China Banking and Insurance Regulatory Commission, and other agencies. Multiple senior executives across major institutions — including a state-owned bank president and a securities firm chairman — have already been removed in 2025.
Our take
At a glance, the Xi leadership’s propaganda campaign promoting the “spirit of the Fourth Plenum” and focus on “comprehensive strict governance of the Party” appear to be designed to facilitate the successful implementation of the 15th Five-Year Plan. Yet those moves, alongside the recent CPPCC personnel adjustments, collective purge of senior executives in the financial sector, and prominent declarations of political loyalty by military leaders, indicate that Xi Jinping is making a bigger political play — a systemic cleanup of potential dissent and a calculated buildup of political capital ahead of a bid for a fourth term in office at the 21st Party Congress in 2027.
i) Xi ally Cai Qi set the tone for political mobilization with his Nov. 3 article in People’s Daily on “comprehensive strict governance of the Party.”
More than mere policy guidance and another exhortation to rally around Xi, Cai’s article suggests that the Xi leadership is preparing to sweep away all internal obstacles (i.e. “resolving prominent issues within the Party” and “wage a protracted battle and decisive battle against corruption”) that might hinder his grand agenda for the 15th Five-Year Plan period under the banner of “self-revolution.”
Further, Cai’s “six key measures” for “advancing the comprehensive strict governance of the Party” imply that Xi will see through the 15th Five-Year Plan period, necessitating that he stays in office beyond the 21st Party Congress.
ii) The CCP’s ongoing propaganda blitz promoting the “spirit of the Fourth Plenum” is part of Xi Jinping’s effort to consolidate power further ahead of the 21st Party Congress. Central to the propaganda is crediting Xi with the CCP regime’s “achievements” over the past five years (14th Five-Year Plan period) and elevating his political theories as guiding principles for the next five (15th Five-Year Plan period). Xinhua’s coverage of the “spirit of the Fourth Plenum” campaign (special column, multiple reports, etc.) indicates that it is another drive to unify thinking and “consensus” within the Party on or even exceeding the scale of the post-Beijing military parade propaganda campaign.
iii) The People’s Liberation Army leadership’s participation in the “spirit of the Fourth Plenum” campaign clearly indicates that the military leadership stands firmly behind Xi Jinping and Xi’s grip over the PLA is secure, contrary to the incessant speculation in overseas Chinese-speaking circles about Xi “losing power” and losing control over the military.
CMC vice chairmen Zhang Youxia and Zhang Shengmin’s attendance of the PLA’s first “spirit of the Fourth Plenum” indoctrination session at the CMC headquarters in Beijing, their calls to adhere to Xi’s political theories and rally around him, and Xinhua’s reporting of the event appear to be intended to highlight the military’s intense loyalty towards Xi Jinping. The fact that the Xi leadership felt a need to emphasize this suggests Xi Jinping is likely aware of rising dissatisfaction towards him within the Party and the military, and therefore needs the military leadership to put on performative displays to drive home the point that political loyalty is paramount and dissenters will not be tolerated.
iv) The CPPCC’s removal of nine deputy directors suggests that Beijing is accelerating the removal of high-level officials who could be “flight risks” amid worsening Sino-U.S. tensions and mounting geopolitical pressures. The Xi leadership likely decided to remove those senior officials following the trade truce between the U.S. and the PRC to avoid embarrassing defections should tensions take a turn for the worse.
While the removal of the nine officials is framed as administrative adjustments rather than corruption cases, the move still weakens the influence of the sidelined officials and tightens Xi’s control over the Party.
v) The Xi leadership’s purge of former CSRC vice chairman Wang Jianjun and several top executives at CICC Capital indicates that anti-corruption efforts to scrub the financial sector are growing more intense and aggressive. Notably, CICC, an established financial powerhouse intertwined with the CCP’s political elite, appears to be the latest big target of “rectification” following purges at the PBoC and the banking regulator in 2024.
Cleaning up the financial sector very likely provides the Xi leadership with leverage against the Party princelings and other CCP elite. Financial executives at top financial firms almost certainly hold sensitive knowledge of the investments of elite CCP families that Beijing can use to punish disloyalty and coerce allegiance. Also, the intense scrutiny of the financial sector essentially severs Xi’s lingering factional rivals from their funding channels, while confiscated assets can be used to replenish the regime’s strained fiscal resources.
vi) The Xi leadership’s high-pressure tactics and measures to ensure compliance and “loyalty” carry inherent political risks. Excessive purges will deepen resentment towards Xi and his leadership within the Party, and foster passivity and indifference within the ranks rather than inspire officials to undertake better governance. Meanwhile, sweeping personnel chances may disrupt policy execution and trap the CCP system in prolonged instability. The end result is Beijing’s perpetual inability to resolve China’s structural and fiscal crises even as Xi tightens his grip on power as a means to bring about a resolution.
