Zhang Bin, an expert on tax research with the Chinese Academy of Social Sciences, said only 20 percent of the 4 trillion yuan of income from land sales in 2013 - 800 billion yuan - was at the disposal of local governments. That sum could only cover half of the interest generated by the government debt.

The central government's annual economic working conference in December underlined the control of local government's debt risk as one of the six major tasks for this year. Experts are calling for additional methods for solving the debt issue.

Local governments 'need to refinance debt'

Key shadow banking document released

Liu Shangxi, deputy head of the Fiscal Science Research Institute with the Finance Ministry, said equity transfers from State-owned enterprises would be a way of repaying matured debt.

Local government's annual work reports have also made other arrangements, such as using reserve funds and bond issuances, to counter the possible risk of debt default.

The government in Guangzhou said it would liquidize some of its high-quality assets and increase its revenue from State-owned enterprises in the hope that 60 percent of the city's existing liabilities will be resolved by 2016.

Lian Ping, chief economist at the Bank of Communications, said local government financing vehicles are widely criticized for low transparency and unsustainability. He suggested a government debt market should be established to facilitate independent debt issuance by local governments.

"A well-operated securitization market could contribute to funding diversification and facilitate economic reforms and development in China in the near future," said Vera Chaplin, a credit analyst with Standard & Poor's Ratings Services.

To this end, China will need to build experience, gain economies of scale to derive cost effectiveness and build investor confidence, including that of offshore investors, according to Chaplin.

Moreover, it could take time for China to build a significant securitization infrastructure, such as a comprehensive legal framework and procedures, transparency of origin standards and validation, availability of reliable asset performance history and servicing practice, the establishment of third-party engagement practice and proper information disclosure, she said.

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