There is a speculation that the local governments in China could sell some  stockholdings in state-owned companies as an option to repay increasing debts, approximately 5 trillion yuan or $820 billion based on the estimate of UBS AG (NYSE:UBS), according to Bloomberg.

Yao Wei, economist at Societe Generale SA (EPA:GLE) in Hong Kong opined that a partial sale of Chinese local government’s stake in companies owned by the state is one option to address the debt problem.

“Local governments have various entities and agencies, from pension management bureaus to state-owned asset supervision bodies, to hold shares. One thing is for sure — the number is in the trillions,” said Yao.  She estimated that local governments have a stockpile of around 3 trillion yuan as of 2011.

UBS Shanghai analyst, Chen Li noted that that the Chinese local governments already sold some stockholdings over the past two years. He believed that officials might do the same amid repayment pressures and sales from lands declined. Local governments are also subject to an upcoming national audit.

The National Budget Office in China submitted its report regarding the debt of local governments to the State Council. The report indicated that local government’s level of borrowings was more than 14 trillion yuan, as reported by Caijing in its website earlier this week. The state government ordered a nationwide review on local government debts last July. In 2011, National Budget Office found that the total debt of local governments was 10.7 trillion yuan.  Last April, Former Finance Minister Xiang Huaicheng projected that the amount increased to more than 20 trillion yuan.

Based on the analyst survey conducted by Bloomberg, the local government funding emerged as the number issue that needs reform. China’s Communist Party will meet next month to discuss economic policies.

Yao emphasized that the sale of government shares cannot be conducted in a “big bang way” instead, it will take a long-term process. She said, “If local governments come out and announce big share-sale plans, it will send jitters through retail investors and cause stock prices to plunge.”

Chen shared a similar opinion. According to him, the sales of equity will “probably continue for a while,” and local governments have the option to sell stake on the market or reach out to different buyers including foreign investors and private equity firms.