As China's local government debt levels balloon to $3 trillion, one analyst told CNBC that China's debt sentence is the biggest "known unknown" risk to global financial markets in 2014.
In a long awaited report, China's National Audit Office reported this week that local government debt had increased 67 percent from the end of 2010 to reach 17.9 trillion renminbi ($2.95 trillion) by the end of June.
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The report highlights concerns over the country's spiraling credit addiction at a time when it's struggling to sustain economic growth and avoid a financial crisis.
"China's debt is the biggest 'known unknown' of 2014. Because is it something that is going to balloon into an international issue and something that will affect the markets?" Richard Harris, CEO of Port Shelter Investment Management told CNBC Asia's Squawk Box on Monday.
"When you look at what the National Audit Office is really saying, they are talking about local government debt being up 70 percent, we are not talking about 10 or 15 percent, this is 70 percent," he added.
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Local governments in China borrowed heavily following the global financial crisis to help sustain the country's impressive growth rates by funding investment projects. The entities are not permitted to borrow from banks, so instead they set up special purpose vehicles to do so.
But analysts have expressed fears that many of these investments may never make enough returns to repay the interest and principal on the debt.
Port Shelter Investment Management's Harris told CNBC that China's rising local government debt was a huge issue.
"Local government debt is pretty much half of Chinese debt in total which is now over $5 trillion. This is now a big problem, we are no longer in a situation where china is a rich country we are now in a situation where china is an indebted country," he added.
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