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China's central bank quashed the speculation that local governments' debt may be bigger than an official estimate of 10.7 trillion yuan (US$1.65 trillion) on Monday.

An estimate of 14 trillion yuan of local government loans that was previously implied by the central bank is "obviously" too large, the People's Bank of China has said on its website.

China's National Audit Office (NAO) has never "underestimated or omitted the country's local government debt burden," a NAO spokesman said on Monday, reiterating its debt figures were correct and reliable.

The PBOC also said that most of the loans went to projects that will generate enough revenue to service their debt, with only a "small portion" likely to need "financial grants."

Some institutions kept erroneously arriving at 14 trillion yuan of local government loans by assuming such loans formed 30 percent of China's total outstanding loans of 47 trillion yuan at the end of 2010, the central bank said.

Instead, 30 percent, which the central bank mentioned in a June 1 report, was the maximum local debt load from individual provinces. This ratio varied among governments, and none exceeded 30 percent, the central bank said.

Its reasoning is that you cannot use the maximum proportion (30 percent) to multiply China's total outstanding loans at the end of 2010 because both the base (47 trillion) and the proportion (30 percent) are wrong.

China's government debts totaled about 28 trillion yuan by the end of 2010, accounting for 71 percent of the GDP, the Beijing Times reported Tuesday

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