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Can China contain high local government debt?

It's hard for China to get on top of its high local-government debt problem because it doesn't really know the full extent of debt levels, the president of China Beige Book International said on Wednesday.

China's state auditor said in late December that local governments had total outstanding debt of almost $3 trillion at the end of June last year. The results showed that debt incurred by local government was up 67 percent from the last audit in 2011.

(Read more: China's $3 trillion local government debt stirs alarm)

Even with that assessment, it's not easy to assess the extent of debt levels, said Leland Miller, president of the China Beige Book (CBB), a survey on national, regional and sectoral economic conditions in the world's second biggest economy.

"I don't think they [the government] have any clue about how much debt is out there. I don't think there's any way to track this," he said, replying to a question on CNBC Asia's "Squawk Box" about whether Beijing was on top of the problem.

"The audit was meant to come out in September, it came out months later. I think the number is a wild guess… The biggest problem with understanding the Chinese economy is that there's not enough data that investors can see," he added.

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The large pile of local government debt is seen as one of the biggest threats facing China's economy. There are also concerns that a large part of the debt cannot be repaid as most of the money borrowed was used to fund non-profitable projects.

The prospect of defaults meanwhile has stoked concerns that Chinese banks will be left with a bad debt pile that threatens financial stability.

(Read more: Here's how bad China's bad loan problem could get)

China last week unveiled new guidelines to strengthen the regulation of risky off-balance sheet lending in a bid to address the growing financial risks associated with a sharp rise in debt.

Challenges

Augmented government debt at a local level rose to around 45 percent of gross domestic product (GDP) in 2012, staff at the International Monetary Fund (IMF) said in a paper published on Tuesday.

They said that this was around double general government debt but fell within "sustainability thresholds."

The paper highlighted some of the challenges Beijing faces in reining in higher debt such as putting in place a "better framework to manage and monitor local government borrowing."

(Read more: Global economy at a turning point: World Bank)

"We think higher interest rates are an element of the reforms of local government finances," Tim Condon, head of research for Asia at ING Financial Markets said in a note.

"Between the appreciation of the yuan and the rise in market interest rates monetary conditions tightened in 2013, which we think subjects the consensus forecast for 2014 GDP growth of 7.5 percent to asymmetric downside risk."

According to Miller at CBB, a slowdown in economic growth seen last year was likely to continue into 2014.

"We talk to thousands of firms on the ground and what they're telling us right now is that there was a bump up in growth from Q3 to Q4, which is not what the consensus is," he said.

"But the more important story was that there was a deceleration over the course of the year. Every one of our sectors decelerated over the course of 2013 from the first quarter to the fourth quarter, except manufacturing," he added.

— By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter @DharaCNBC

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