Concerns rise over local govts' increased debt burden (2)

Zhang Changchun, director of the Institute of Investment at the NDRC, said that the scale of the bond market will continue to increase in 2013, as the central government has indicated that it will stick to a proactive fiscal policy in 2013.

"Urbanization will lead to growth in investment, but the central government has also emphasized the quality of urbanization, so I think investment will speed up at a reasonable pace," said Zhang.

Tightening measures on real estate in 2012 have affected local governments' ability to repay debts as land revenues are a major contributor to local coffers.

"If the property regulations remain in force, local debts and bonds won't increase too much," said Zhang.

China's local government debts reached 10.7 trillion yuan at the end of 2010, equivalent to around 27 percent of the gross domestic product, according to a report issued last year by the National Audit Office.

The nation's overall risks are controllable despite concerns that some local governments are facing higher risks in repaying their debts, said Zhang.

As they are regarded as corporate bonds, the government has no obligation to pay financing vehicles' debts if they face a default, he said. However, many still expect the government will bail them out in the event of a default.

Chen Wei, an analyst at Minzu Securities, said that policymakers also stressed the need to control risks in the financial system and increase the capital supply next year, including loans, which probably means the authorities won't let local financing vehicles issue too much debts.

"Urbanization won't be so rapid as people imagined. The investment scale will grow in the coming year but won't be too high," he said.

By the end of 2011, China had 9,828 local financing vehicles, with around 61 percent of these at county level, raising finance for urban infrastructure, such as railways, ports and water projects, according to Chen.