China may have understated the debt burden of local governments by as much as $541.6 billion, and the proportion of bad loans could be higher than previously forecast, ratings agency Moody’s said Tuesday.

In a stern warning, Moody’s warned the lack of a plan to tackle bad loans to local governments meant it could downgrade its outlook for Chinese banks to negative.

The agency’s findings came after it analyzed an audit released in June by China’s National Audit Office, which put the debt held by local governments at 10.7 trillion yuan ($1.65 trillion) as of the end of 2010.

The figure released by the NAO was the equivalent to about 27 percent of China’s 2010 gross domestic product of 39.8 trillion yuan.
 
(AFP)