The buildup of total debt, unprecedented in recent history, is leading to mounting repayment pressures. The bank estimated that interest payments were equivalent to 13 percent of GDP in March, up from an average of 7 to 8 percent in recent years.

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This high ratio is eating up an increasing share of corporate profit and government revenues and crowding out new investment, which makes a pick-up in growth momentum in 2014 all the more difficult to achieve.

The average nominal interest rate on China's debt was about 5.8 percent in the first quarter, down slightly from the average 6 percent rate in 2013, the bank said.

"While we do not believe a debt crisis is around the corner, partly because some of this debt is 'ever

Behind the credit expansion and slower growth is a painful fact: China's return on investment is declining, the report noted, which raises questions about the nation's credit-fueled, investment-driven model.

Mao Zhenhua, an economics professor at the Renmin University of China, said the unrestrained expansion of State-owned enterprises and local governments in the past few years lay behind the wasteful investment.

Standard Chartered cautioned that the debt burden should be reduced while preventing a collapse in investment.

"The key quandary for policymakers today is not how to deleverage per se, but rather how to deleverage 'beautifully'. You cannot deleverage an economy that is not growing," it said.