Chinese local government debt could have 'global impact'

China has local government debts of 17.7 trillion yuan ($2.9tn), up 70% from three years ago, according to an official report from the National Audit Office (NAO).

The report showed some local governments were using new loans to repay more than a fifth of their debt.

The BBC's chief business correspondent Linda Yueh said the large sums of debt have arisen from local governments being "unable to borrow freely in terms of the local bond market", forcing them to use "fiscal stimulus spending to support the economy".

She said this in turn meant local authorities in China "were borrowing off balance sheets from banks".

Asked about the possible effects of this debt, she said "if China were to have a systemic banking crisis…it will have a much wider regional, if not global, impact" in real economic terms.

Miranda Carr, head of China research at North Square Blue Oak, said the Chinese government "are aware of [the problem]", but that it will take time to set up "a fully functioning bond market" to provide a potential solution.

First broadcast on BBC Radio 4's Today programme on Wednesday 8 January 2014.