The flood of debt comes at a time when concerns have intensified over a possible funding shortage for new stimulus projects.

A survey by the state auditor last month revealed some of the works had been hampered by a lack of funding from lower-level governments, despite soaring bank lending and Beijing's success in delivering its promised share of fiscal support.

To remedy this, the State Council lowered the equity-capital ratio for some types of new infrastructure and industrial projects to induce more bank lending. Beijing had banned provincial and municipal authorities from directly tapping into the debt market for fear of excessive borrowing. As the country's tax system funnels most revenue to Beijing, lower-level authorities become heavily reliant on land sales to make ends meet.

However, the property downturn, which squeezed this significant revenue stream, coupled with an exploding demand for cash for the ambitious stimulus scheme, forced Beijing to change its position on debt issues in March. Twenty-three provinces and municipalities have since raised money in that fashion.

'Local government borrowing has become an important source of funding for the stimulus package,' said Li Wei, an economist at Standard Chartered. 'It contributes to sustaining the steam of the boosting measures.'

The debt has appealed to institutional investors in the domestic interbank market awash with liquidity despite thin trading on the floor.

'The local government debt, all with a three-year maturity, enjoys de facto state guarantees but bear higher coupon rates than treasury bills of the same maturity,' said Gu Weiyong of Ucon Investment.

'Most investors apparently decided to hold to maturity rather than flip the bills for profit.'