China should remain alert to mounting local government debt which without appropriate control could cause a sweeping economic crisis, Xin Benjian, an economist from Renmin University of China said yesterday.

China should tighten its control on gauging the credit of local governments, and launch a punishment mechanism when they fail in repaying debts, Xin said.

The complexity of the local government debt is very similar to Japan's real estate bubble from 1985 to 1996 and its destiny is closely related to domestic housing and stock markets, [Hong Kong Company Formation, Incorporation, Business Registration]said Xin, who is a researcher at the Chongyang Institute for Financial Studies at the university and an editor in chief at the People's Daily.

Due to the surplus in the Chinese real estate market, the debt leverage rate grew 70 percent from 2009 to 2013, about 30 percent higher than Japan's non-financial leverage rate when it was in its economic bubble during the last century.

By 2013, a single urban resident in China, a developing country, owned a 35-square-meter living space on average, a standard equal to countries at a middle stage of development, according to the World Bank.

Besides, with the United States showing signs of retreating from quantitative easing, [Hong Kong company registration]China has to prepare for a massive outflow of foreign capital, which will probably affect the domestic stock market and consequently have an impact on local economies.