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Bank of America Merrill Lynch became the most recent financial institution to start sounding scared about China’s debt.

While no one is panicking just yet, there sure are an increasing number of people — including analysts at UBS and Macquarie — who are talking about when it might be appropriate to consider panicking.

To recap, China’s total debt is about $28 trillion, or roughly half the world’s entire debt.

Until recently, most people have reassured themselves that Chinese debt isn’t something to worry about because the economy is growing, which means it’s easier to pay back as time goes by. Also, the debt is spread around in various sectors — corporate, consumer, government — rather than in one systemically threatening toxic dump.

Now, the Chinese economy is slowing. But China hasn’t stopped adding more debt. About five years ago, Chinese debt levels began accelerating far faster than GDP was growing. In other words, as time goes by China adds more debt and becomes less and less able to pay it off.

Nomura analysts Wendy Liu and her team just did us all a huge favour by calculating all of China’s debts, over time, in these two charts. We’ve added some highlights to draw your attention to the most dramatic bits.

Some Chinese companies have doubled their debt loads since 2010:

When you add in government debt, China added 61 percentage points of debt to GDP in just the last 5 years:

In 2005, China’s debt was 164% of GDP. Now it’s 236% of GDP. It’s not the scale that’s worrying. Many countries have debt that is twice GDP. It’s the speed at which it is changing, compared to the slower pace of economic growth.

China’s “zombie” problem

The fact that a lot of this debt is sitting in local government or state-owned enterprises has been reassuring, until now. The assumption has been that government debt is the government’s problem, not everyone else’s. The government can let its “zombie” entities stumble on as debt-paying vehicles or maybe occasionally let a couple default without any systemic contagion.

But yesterday the Chinese government again began buying stocks to prop up its plummeting stock market. No one thinks that is sustainable. And my colleague Linette Lopez noted yesterday that there is a capital-flight “doomsday scenario” being floated by BAML which suggests that China only has about a year, to a year and a half, of currency reserves on hand if it needs to defend a run against the yuan.

So now that government debt doesn’t look so isolated. China might need its money back, suddenly.

The problem with debt, even government debt, is that it isn’t just an accounting problem. It’s a real thing. Sure, the government may be forced to take a few haircuts on bad bets — but that will filter through the system, eventually. The government is a huge economic player in the Chinese economy. Bad debt won’t just disappear into thin air.

The question is whether the effect of that debt can be smoothly managed away before things get worse.

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