China's staggering $3 trillion local government debt has to be significantly reduced and quickly if China intends to safeguard economic growth, maintain financial stability, and avert a crippling new financial crisis.

The Chinese-language sister paper, Want Daily, warns that the ever increasing debt places China in danger of a Lehman Brothers-style financial collapse that triggered the worldwide Great Recession in 2008.

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The National Audit Office, China's state auditor, reported that the total outstanding debt of local governments hit $3 trillion at the end of June 2013. The total includes contingent liabilities and debt guarantees.

The debt load saddles China with a total local government debt equal to 58 percent of its gross domestic product. Some analysts believe China's mammoth local government debt is probably the biggest threat to its economy and has investors worried.

They point out that a large part of this mountain of debt can't be repaid since most of the borrowed money has paid for non-lucrative public infrastructure. The prospect of local governments defaulting on their huge debts is fueling fears among China's heavily indebted banks and could destabilize China's financial system.

Analysts say the solution lies in accelerated financial reforms that are being resisted by the local government units that have racked-up this huge debt. Recent reports, however, reveal that some local governments are using new loans to repay more than a fifth of their debt. Others are still relying heavily on selling land to pay off old loans.

Financial experts note that while China's total government debt remains low by the standards of developed countries, the rate of the rise is alarming. The debt audit by the National Audit Office indicates that China's local government debt has almost doubled in only 2-1/2 years.

The Bank of Communications, China's fifth largest bank, believes the local government debt situation will continue to worsen since China's urban investment debt faces repayments amounting to US $56.3 billion in 2014. The first major wave of payments is due this April.

Seven-year bonds will also mature soon and bring systemic risk to dangerous levels. This could conceivably bring China's local government debt to the brink of collapse.