China says its local governments have accumulated about $1.7 trillion of debt due to self-created financing vehicles and massive bank loans.

The central government's chief auditor, Liu Jiaya, revealed the scope of the local government debt Monday during a speech to the National People's Congress in Beijing. Liu says the amount of money owed by local governments accounts for 27 percent of China's gross domestic product.

Local governments are legally barred from raising money on their own, so they created their own investment companies to borrow from state banks to help them finance local infrastructure projects. But Liu said his audit discovered that many of them were using illegal collateral to secure the loans, while others relied on land sales to pay the debt.

Liu said the management of some of the investments is “irregular,” while the ability of the local governments to pay off their loans is “quite weak.”

On Monday, Finance Minister Xie Xuren told the National People's Congress that the central government had a budget deficit last year of $123 billion. However, that was smaller than the deficit that had been budgeted in an effort to stimulate the economy.