Concerns about China's local government debt problems have been rekindled after the country's State auditor said a random inspection found irregularities in some local government borrowings involving billions of dollars.

The fact that the problems related to local government borrowings were uncovered in a random spot check involving a considerable amount of funds shows that China still has a long way to go to fix local government financing problems.

The situation demonstrates the need for the central government to launch thorough and sweeping investigations of local government borrowings nationwide to clean up local government balance sheets. It also creates a sense of urgency for Beijing to accelerate local government financing reforms and to enhance the transparency of local government finances in order to prevent a debt avalanche and the large-scale waste of resources.

The National Audit Office reviewed the financials of 11 provinces, 10 cities and 21 counties and discovered that several local governments had borrowed a total of 57 billion yuan ($8.5 billion) through illegal guarantees, financing channels or promises of returns from projects by the end of 2015, according to Liu Jiayi, head of the office. The State auditor also discovered some other problems, including irregular practices regarding debt swaps and proof that funds that were financed through bond issuance were not efficiently used, among other issues.

There are sufficient reasons why these discoveries should be considered cause for alarm, as local government borrowing problems found through spot inspections may be only the tip of the iceberg.

As a matter of fact, the problem of China's local government debt has two facets. First, it concerns the actual amount of money that local governments have borrowed. The balance of local government debts reached 15.4 trillion yuan at the end of 2014, with a debt ratio accounting for 86 percent of local GDP, compared to around 10.7 trillion yuan in 2010. Although the local debt ratio of 86 percent is below the warning line of 100 percent set by the Chinese government, it is still hefty, putting heavy pressure on local governments to pay back debts.

Second, the opaque structure of these debts is a significant part of the problem. Due to a huge debt buildup over the past decade, China banned local governments from raising money through independent bond sales in 1994, finally ending the ban in 2014. But local governments had long dodged the restriction by setting up companies known as local government finance vehicles (LGFVs), which raise money by taking bank loans, issuing bonds or turning to shadow banking on behalf of local governments. Currently, the liabilities of LGFVs are not reflected on local governments' balance sheets, despite the fact that local governments have a stake in them. The exact volume of LGFVs remains unclear, undermining the transparency of local government finances and posing great financial risks.

China has launched a series of reform programs to tackle these local government debt problems. The government has capped the amount of debt that local governments can issue at 16 trillion yuan. It has also prohibited local governments from using LGFVs and announced debt swap programs to allow local governments to swap high-yielding LGFV debt piled up in previous years for low-interest municipal bonds.

But the transparency of debt swap programs has yet to be improved, with detailed information about how the swap is made and what LGFVs are swap priorities still unavailable. Therefore, there is still lot of work to do to address local government debt problems. The focus of the reforms should be on improving the transparency of local government financing, including the debt swaps that aim to reduce the pileup of LGFVs and improve the efficiency of the use of local government borrowings. Failing to do so will not only pose a systemic risk to the country's financial system but also to the long-term sustainable growth of the economy.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn