In a brief announcement Sunday, the National Audit Office said at the request of the Cabinet, its agencies would audit the spending by local governments, but did not say how long the process would last and did not give details.
But the issue of rising local government debt appeared serious enough as it comes up at a time when China's economy is slowing down.
The official Xinhua News Agency said an audit conducted in 2011 showed the local governments' debt totaled 10.7 trillion yuan or $1.73 trillion at the end of 2010. The report said a follow-up audit last month found 36 local governments alone had liabilities of 3.86 trillion yuan or nearly $60 billion at the end of last year.
Xinhua said the federal government has been warning about the urgent need to guard against financial risks, including local government debts.
The BBC reported while some of the local government borrowings were spent on infrastructure projects, others went to finance property construction.
"A lot of the projects that were invested in will not have the kind of returns that they had initially estimated," Dariusz Kowalczyk, senior economist with Credit Agricole-CIB in Hong Kong told the BBC. "That coupled with slowing growth means that the finances of the local governments may not look too good."