China has developed a craving for consumer goods, the more luxurious, the better. Along with most other countries, China’s credit boom and spending spree are being followed by out-of-control debt.

While household debt is spiraling, the Chinese government is pushing to double the size of the economy by 2020 (setting this goal in 2010). This ambitious project will almost certainly entail more lending and increased debts. There is a question as to exactly how much more debt China can handle.

China’s debt has been rising steadily, from 141 percent of GDP in 2008 to 256 percent of GDP in 2017. This type of rapidly-increasing debt level has frequently been the precursor of a hard economic fall, and the world is watching China carefully.

While countries such as the U.S. and the U.K. also have large debt-to-GDP ratios, the difference is that both are high-income countries, while China has only reached middle-income status, with only $15,400 in household purchasing power. This is a quarter of the household purchasing power of the US. Getting out of debt on China’s low level of income will be far more difficult than in higher-income nations.

Like many global central banks, the People’s Bank of China(“PBOC”) has been injecting lots of cash into the system to try to provide some stability, which is only a temporary fix for a long-term problem.

Increasing debt without a concurrent economic gain has inevitably led to the economic downfall. Out of 43 countries that experienced an increase of credit-to-GDP of more than 30 percent in five years, 38 of those countries faced a financial disaster. Those statistics do not bode well for China.

China’s economy ranks second globally. It is a leading trader and has the third-largest bond market. Any economic meltdown would have a global ripple effect, with neighboring Vietnam, South Korea, and Malaysia being most at risk. The US economy would feel the effects, as well. China has become an important market for US companies, such as Apple Inc., Intel Corp., and Yum! Brands. For these US companies, China represents a significant market and source of revenues. Intel Corp.’s Chinese revenues increased from 13 percent of total revenues in 2008 to almost double that amount, 24 percent, in 2016. Any financial crash in China would adversely affect the revenues of these and other US companies.

Thus far, China’s household debt has been reasonably leveraged because of easy and available credit. Higher interest rates could curtail this easy credit, but the PBOC has kept the interest rate at 4.35 percent. This inaction regarding interest rates does not mean the Chinese government and Chinese bankers are unaware of the debt problem. The government is encouraging smaller banks to merge to increase capital. Bad loans, however, remain a problem. In 2016, 41 banks wrote off 576 billion yuan in bad loans, up considerably from the 117-billion-yuan bad loan write-offs in 2013.

On the plus side, China has experienced stellar GDP growth, almost seven percent in 2017. This translates into increased profits and higher tax revenues. If this growth is sustained in the next few years, the debt-GDP ratio could remain steady at 290 percent.

China’s economic growth has encouraged widespread home buying and mortgage debts as property prices soar. Mortgage debt has increased by 25 percent in two years. People who have bought during the economic boom are now facing monthly mortgage payments that equal up to half of their monthly income. Household budgets are stretching to the breaking point. This has forced many to curtail spending elsewhere and putting off other necessary big purchase items. This at a time when the government is encouraging greater consumer consumption.

China has traditionally relied on savings as a buffer against financial disaster. However, many younger households will likely use those savings to pay off debt. This could present a problem during times of emergencies, as China’s welfare system and healthcare lag behind other developed nations who have created a more stable safety net. If the central bank does increase interest rates, higher mortgage payments could present genuine problems for homeowners, even though it would help curtail the spiraling debt problem and lavish consumer spending. This is not an easy dichotomy for the Chinese government to handle, and it may put it in a lose-lose situation.

China has grown from an export nation to a nation of consumers, all of whom are eager to stimulate the economy with increased spending.

Like many other countries, China is on going down a road of unsustainable spending. This may mean that China’s boom may see a dramatic fall, and consumers may be saddled with debts they have no way of repaying.