Report Summary 1. Report Industry Investment Rating No industry investment rating is provided in the report. 2. Core Viewpoints - Since the central government proposed a comprehensive debt - resolution plan in July 2023, over two years have passed, and the progress towards the goal of eliminating implicit local government debt by 2028 is nearly halfway. The debt - resolution efforts have achieved results in both "resolving existing debt" and "curbing new debt" [2][10][11]. - Although local government comprehensive financial resources have declined since 2021 and the overall debt volume has increased, the interest - payment cost has decreased. In 2025, the overall interest - payment pressure is expected to improve compared to 2024, and the tail - end risks have been mitigated [3][34][37]. - In城投 bond investment, there are three major changes: the credit spread has significantly narrowed, showing characteristics similar to interest - rate bonds; the regional differentiation has been significantly reduced; and in the context of low static yields, investors are trying to gain returns from duration, but the timing difficulty has increased [4][49]. 3. Summary by Relevant Catalog 3.1 "Mid - term Exam" of Debt Resolution: Achievements in "Resolving Existing Debt and Curbing New Debt" - **Policy Background**: From July 2023 to October 2025, a series of policies were introduced to promote debt resolution, and the "14th Five - Year Plan" for debt resolution has started a new journey [10]. - **Resolving Existing Debt**: By the end of 2024, the implicit debt was 10.5 trillion yuan, nearly 4 trillion yuan less than in 2023. As of the end of August 2025, 4 trillion yuan of the additional 6 - trillion - yuan special debt quota had been issued. After replacement, the average interest cost of debt decreased by over 2.5 percentage points, saving over 450 billion yuan in interest [11]. - **Debt Structure Optimization**: The proportion of high - cost non - standard debt decreased. By the end of 2024, the non - standard debt proportion in national urban investment interest - bearing debt was 4.8%, down 1.1 percentage points from the end of 2023. Most provinces saw a decline in non - standard debt proportion [12][13]. - **Stable Scale and Reduced Cost of Urban Investment Bonds**: Since July 2023, the scale of urban investment bonds has remained stable at around 16 trillion yuan, and the weighted average coupon rate has dropped from about 4.5% to 3.2%, saving about 20 billion yuan in annual interest [14]. - **Reduced Interest - Payment Cost of Total Interest - Bearing Debt**: The national urban investment total interest - bearing debt interest - payment cost dropped from 5.18% at the end of 2022 to about 4.9% at the end of 2024, and most provinces saw a decline in interest - payment pressure [19]. - **Reduced Non - standard Debt Risks**: The number of non - standard defaults of urban investment has significantly decreased, and the number of non - standard financing new additions, such as trust financing, has also declined [23][30]. - **Controlled Debt Growth**: The growth rate of urban investment interest - bearing debt has been well - controlled, dropping to 5.5% in 2024 and further to 4.9% in the 2025 semi - annual report [27]. 3.2 Mitigation of Tail - end Regional Risks: Overall Debt in Tight Balance - **Decline in Local Comprehensive Financial Resources**: Affected by factors such as economic slowdown and the cold land market, local government comprehensive financial resources reached a peak of about 20.5 trillion yuan in 2021 and then gradually declined to 17.66 trillion yuan in 2024, a 13.8% decrease compared to 2021 [34]. - **Increasing Debt Volume**: The balance of broad - based local government debt reached about 110 trillion yuan at the end of 2024, a 43% increase compared to 2021 [37]. - **Interest - Payment Pressure and Risk Mitigation**: Since 2021, the local government interest - payment pressure has gradually increased. It is expected to improve in 2025 but has not returned to the 2021 level. About two - thirds of the provinces are expected to see an improvement in interest - payment ability in 2025, and the tail - end risks have been mitigated [41][45]. 3.3 "Interest - Rate" Characteristics of Urban Investment Bond Returns: From Regional Differentiation to Duration Timing - **Narrowed Credit Spread**: Before debt resolution, the credit spread of urban investment bonds was over 200bp, 26bp higher than that of industrial bonds. Now it has narrowed to 55bp, and the excess spread compared to industrial bonds has been eliminated [49]. - **Reduced Regional Differentiation**: The gap between the provinces with the highest and lowest credit spreads has shrunk from over 700bp to less than 100bp, and the average credit spread of 12 key provinces has narrowed from 362bp to about 60bp [57][59]. - **Increased Duration Timing Difficulty**: In the context of low static yields, investors try to gain returns from duration, but since 2025, the contribution of the duration - extension strategy to returns has been negative, and the timing difficulty has increased significantly [4][60].