["Asian-Pacific Economic Literature, EarlyView. ", "\nABSTRACT\nChina implemented the ‘New Budget Law’ in 2015, after which local government bonds gained recognition as a pivotal financial instrument. This empirical study examines the intricate relationship between local government debt (GD) dynamics and bank non‐performing loan (NPL) ratios. By leveraging data from various Chinese provinces for the period 2015–2021 and employing the fixed‐effects model, our analysis reveals a significant negative correlation between GD and NPL ratios, with a pronounced impact observed within the domain of city commercial banks.\n"]