Repayment pressure rising, along with bankruptcy concerns

In mid-2013, China's local and central government debt was 56 percent of GDP, according to Wang Tao, chief China economist of UBS AG.

By contrast, US federal, state and local debt was about 100 percent of GDP in 2010, according to calculations by Ryan Rutkowski, an analyst with the Washington-based Peterson Institute.

"The debt/GDP ratio for China is not very high, compared with the US and some European countries. Meanwhile, the Chinese government controls a big sum of good quality assets, which guarantees strong management over financial stability," Tang at the Bank of Communications said.

Loans in China often went to property and infrastructure projects rather than personal consumption, he said, making another big difference between China and the US, hit by the subprime crisis.

"Although returns may come slowly, even unable to meet debt maturity, at least they went to investment and would bring gains in the future," he explained.

Wang from UBS said the debt level was "manageable" but its rapid rise was "alarming." Local debt now equals about 33 percent of China's gross domestic product, up from about 10 percent in 2008 and almost nothing in 1997.

Premier Li said in his news conference that China's overall debt is controllable and the government should enhance oversight and solve problems in a timely way to ensure no systemic and regional risks.

Authorities have moved to clear debts accrued over the past several years, a reaction to concerns that China's debt issue is worrisome, mainly because of rapid expansion of the shadow banking sector.

As the central bank deleverages the shadow banking sector and encourages banks to bring loans back onto their balance sheets to monitor risks, on-balance-sheet bank loans accounted for nearly 64 percent of new credit issuance in China in the first two months of 2014, up from 55 percent last year. At the same time, lending by trust companies fell from nearly 11 percent of new credit to just over 5 percent, the Financial Times reported.

"It is quite clear that we shall not expect any big-scale economic stimulus program at this stage. But it does not mean investment is discouraged," said Tang with the Bank of Communications.

"In fact, growth and urbanization demand smart investment. However, the authorities should think about how to diversify investors and capital sources," Tang added.

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