China's ongoing debt audit reflects the new administration's concerns about surging borrowing levels. [File photo]

Relative healthy debt level

The NAO's 2010 audit data showed that China's local government debt accounted for almost 27 percent of the country's GDP in 2010, although many believe that the real debt level was much higher.

Former Finance Minister Xiang Huaicheng said that China's government debt was approximately 40 percent of its GDP in 2012.

International institutions, however, believe that the figure is higher, with the International Monetary Fund in its July estimate putting China's government debt at 46 percent of GDP and the Bank of America Merrill Lynch (BoFA) putting the figure at 50 percent.

Even the highest estimate of 50 percent would mean that China's government debt is much smaller than that of the U.S., Japan and other developed nations.

BoFA believes that China's debt-to-GDP figure is still relatively healthy compared to the U.S.'s figure of 100 percent and Japan's 200 percent.

The Development Research Center of the State Council, a think tank under the cabinet, also views the figures in a positive light. In its August report, the think tank said that the public sector's asset-liability ratio was at the "middle" level by international standards and the possibility of a short-term debt crisis was low.

Most of funds borrowed by local governments through financing platforms were invested in productive rather than consumption projects, said Shang Fulin, chairman of China Banking Regulatory Commission (CBRC). These projects may lead to short-term cash crunches, but have relatively good long-term returns, said Shang.

Song Li, deputy director of the Institute of Economic Research under the NDRC, agreed. He said: "A large portion of China's local government debt is facing short-term repayment or a mismatch issue. It's more a question of financial distress and will not result in systematic risks or crisis."