Overall risks associated with public debt are "controllable", and there is room on the government's balance sheet to borrow more, the Ministry of Finance said.

However, it warned the local governments' ability to repay debt has weakened.

The country's total government debt stood at almost 26.7 trillion yuan at the end of 2015, the ministry said in a statement on May 26. Out of this, local governments owed 16 trillion yuan. The figure was up from 15.4 trillion yuan in 2014, Lou Jiwei, the finance minister, said late last year.

Government borrowings as a percentage of the gross domestic product stood at 39.4 percent, below European Union's warning line of 60 percent and lower than that of other major economies such as Japan and the United States, the ministry said. It said this indicates the government still has room to borrow further.

The ratio of total outstanding local governments' debt to their annual income was 89.2 percent, the statement showed. The ministry says it was "below the international warning threshold," but risks in some regions have increased.

The central government set the benchmark for the debt-to-annual income ratio at 100 percent. But levels of public borrowing in more than 100 cities and 400 counties had crossed this red line in 2015, Lou said.

However, market analysts held positive attitudes toward the hefty sums owed by local authorities. Unlike countries that loan money to pay for recurring public expenses, in China, local governments spend borrowed funds on infrastructure development, said Qiao Baoyun, dean of the School of Public Finance and Administration at Central University of Finance and Economics in Beijing.

"This is really important because the scale of debt is relatively small, and it is backed by high-quality assets," Qiao said.

A refinancing option that allows local authorities to swap loans due soon for low-cost bonds with a longer repayment deadline has proven to be effective, said Fan Wei, an analyst at Shenwan Hongyuan Securities Co. Ltd.

The ministry gave the green light for this debt-swap mechanism in March 2015 and it enabled local governments to issue bonds to banks at a lower interest rate to raise money to clear old, expensive debt.

If a bond goes sour, the provincial government will be responsible for repayment, thus reducing the risks for the bank, the ministry said.

In 2015, local governments were allowed to swap 3.2 trillion yuan worth of high-interest loans for lower-yield government bonds, Lou said late last year.

(From: Caixin Online)