It was stated today that local governments in the world’s second largest economy have absorbed loans of 1.40 trillion US Dollars, approximately 9 trillion Yuan. Many investors and analyst believe that this kind of loans incurred by local governments in China may create lots of headaches to the central government as it is estimated that almost one third of the loans is on high risk of defaulting, creating an abscess which will definitely threat the growth path and the stability of the country if immediate action is not taken. Moreover, it is believed that the 1.4 trillion US Dollar is a number that does not mirror the reality, based on the central bank figures, 30% of the country’s loans have been directed to local governments, raising the loans amount to 2.0 trillion US Dollars. The Bank is very concerned as the situation is moving out of the limits, indicatively a CBOC delegate stated on media. The central government cooperates closely with the central bank to lose the burden from the local governments and to avert the default. A plan is to remove a significant amount of debt and to split it among the country’s largest banks. In addition China is in a good fiscal position and with proper manipulations the local debt can be constrained.