China will control the size of local government debt and use category management on repaying debt and financing on-going projects.

Minister of Finance Xie Xuren said the country will bring debt incomes and expenses under budget management, strictly restrain local government debt increases, and regulate and reduce the number of local government financing companies, China Business News reported Friday.

The ministry is in the process of designing an early risk warning system for local debt. A mechanism to raise debt finance and that is compatible with the socialist market economic system is currently being formulated. The mechanism will operate under standardized regulation with high effectiveness, the ministry said in a notice published on its website on Aug 15.

The debit balance of local governments at province, city and county levels totaled 10,717.5 billion yuan ($1,677.2 billion) by the end of 2010, accounting for 27 percent of China's GDP of the same period, said a Nationwide Local Debts Audit Report issued by the National Audit Office in June. Local governments registered debt payable at 6.7 trillion yuan, 62.62 percent of the total, and guaranteed liability at 2.3 trillion yuan, 21.8 percent of the total.