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China local government debt at manageable levels, though some risks: expert

BEIJING (Reuters) - China's local government debt is at a controllable level although risks are increasing in some areas and projects due to a lack of transparency, a finance ministry official at a think tank was quoted as saying by the official People's Daily.

Jia Kang, head of the Research Institute of Fiscal Science, said in comments published on Monday that the overall debt of China's public sector accounts for about 50 percent of the country's GDP, within a safe level.

China's local government debt has surged as credit flowed into the building of public infrastructure. Poor government disclosure on debt levels has further aggravated concerns about the true size of the debt.

"We still need to wait for this year's audit results. Even if the total debt ratio of the public sector has increased, it still would not surpass levels warning of danger substantially," Jia said.

He was referring to internationally accepted ways of measuring outstanding government debt as a percentage of GDP and fiscal deficits as a percentage of GDP.

China's Audit Office said in July it would conduct an audit of all government debt at the request of the cabinet, but the results have not yet been published.

Jia also warned that China could not lower its guard on potential risks arising from financial strain in some areas and projects.

"There is still relatively high accumulation of risks in some areas and projects. We should take preventive measures at an early stage," Jia said, without giving more details.

Beijing has repeatedly played down fears about local government debt and insists systemic problems are unlikely. Official figures showed local government debt reached 10.7 trillion yuan ($1.76 trillion) by the end of 2010.

($1 = 6.0936 Chinese yuan)

(Reporting by Xiaoyi Shao and Jonathan Standing; Editing by Jacqueline Wong)