It came not with a bang but a whimper.

The January data from China finally confirmed that the country’s foreign-exchange reserves fell by $12.3 billion to $2.998 trillion, which compares with the all-time high of $3.993 trillion in June 2014 (see chart).

A trillion here, a trillion there, and pretty soon we’re talking real money, right?

What the official reserve data do not show is that massive borrowings outside China have accumulated over the past 15 years, bringing net reserves down to about $1.7 trillion, according to statistics prepared by Kynikos Associates.

That much smaller reserve amount is not necessarily large enough to support the yuan exchange rate, particularly if foreign-exchange outflows accelerate again as the Chinese credit bubble has now burst, in my opinion.

“ An acceleration in borrowing with a slowing economy is the classic definition of a burst credit bubble. ” — Ivan Martchev

China has a total debt-to-GDP ratio of close to 400%, if one includes the infamous unregulated shadow banking system that is habitually omitted from official statistics. In 2000, China’s total debt-to-GDP ratio stood near 100%. As Chinese GDP grew from $1.094 trillion at the end of the 20th century to $11.75 trillion at the end of 2016, the country’s total leverage ratio ballooned. China’s economy grew 11-fold, and total credit in the financial system surged by over 40-fold.

As the Chinese economy slows (see chart), the level of borrowing is accelerating, as can be seen here in China’s “total social financing” data.

This credit metric includes off-balance sheet financing outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales. If Chinese GDP continues to slow (and there are many observers, myself included, that do not believe the official 2016 GDP growth rate of 6.7%), and total credit in the economy continues to surge, then the Chinese economy will in effect be running as fast as it can just to stand still. An acceleration in borrowing with a slowing economy is the classic definition of a burst credit bubble.

Partially inaccurate statistics

What was most surprising in 2016 is how orderly the situation in China was. There is also evidence of a slight uptick in economic activity, if one looks at the official statistics. But I don’t believe it to be fully accurate, because the Chinese have a history of “smoothing out” their official economic statistics. For example, their 34% devaluation of the yuan in December 1993 was aimed to help China deal with a recession that was never officially acknowledged. Evidence of the recession only showed up in secondary loan-loss data and other “undoctored” metrics.

I am surprised at the current calm in China, as credit bubbles tend to pick up speed and get rather disorderly when they begin to unravel. I don’t know if this unraveling will come in 2017 or later, but I am watching the official forex reserve data for evidence of accelerating outflows, which would be one sign that the unraveling is picking up steam.

Trump to accelerate China’s woes

On top of China’s own epic credit bubble, we have a phenomenon called Donald J. Trump, who has made it a priority to rebalance the U.S. trade deficit. While I fully support the president in his quest, he appears to point the finger at both China and Mexico in the same fashion. However, the Mexican situation is very different from the one with China, where the trade imbalance is running out of control.

Also see: Donald Trump picks the wrong target with his Mexican standoff

In 2016, as this table shows, the Chinese bought $115.775 billion of U.S. goods and services, while the U.S. bought $462.813 billion worth of Chinese goods and services, which makes for a gargantuan $347 billion trade imbalance and accounts for the lion’s share of the total U.S. trade deficit (see chart).

To be fair to Trump, the Chinese have been running a persistent trade surplus with the rest of the world over the past 10 years (see chart), but that surplus has been getting bigger because exports to China are slowing with the decline in Chinese GDP growth.

Trade as a political tool

More importantly, the Chinese have been using trade as a political tool as they habitually run bilateral trade deficits with many of their Asian trade partners to increase their political influence in the region. Such trade strategies are unlikely to influence the Trump administration, which is hell-bent on rebalancing the U.S.-China trade imbalance.

Trump’s clash with China on the trade issue comes at precisely the wrong time for the Chinese as their epic credit bubble is unraveling. While trade frictions and financial issues in China are unrelated events, Trump’s election is like kerosene thrown on an already burning economic fire in China. What I foresee happening here is similar to the Asian crisis in 1997-1998, this time emanating from China, with the caveat that today’s Chinese GDP is much bigger than total Asian GDP in 1997.

To those who may suggest I am merely making observations and not predictions, please see my January 23, 2015, MarketWatch article, “Why 2015 could be rough for China,” which I wrote before the bulk of China’s $1 trillion foreign-exchange outflow materialized. I am not sure if 2017 will be the year when the wheels come off the wagon in China, but I have seen increasing evidence of my credit-bubble theory coming to fruition and the economic repercussions likely to follow.

Ivan Martchev is an investment specialist with institutional money manager Navellier and Associates. The opinions expressed are his own.