Many critics of China’s official macroeconomic numbers point out that Chinese officials understate how much prices rise in China, which then results in an overstatement of the real GDP growth.

For example, the Conference Board estimates for China’s economic growth are considerably lower that the official published figures.

The importance of financial leverage for supporting the Chinese economy can be seen in the following chart.

Even though the chart illustrates that China’s financial leverage is roughly in line with other advanced countries, nonetheless there still are major differences with respect to the risk factors associated with the economy.

As Woo points out, the Bank of International Settlements (BIS) estimates that China’s total credit to GDP ratio was 256% in mid-2017, which is at a dangerously high level for a country which is still somewhat under developed.

Note that total credit includes borrowings by the general government, households and private non-financial corporations.

As well, the chart illustrates that the swift expansion of credit in China took place over a fairly brief period of time. Finally, there has been considerable concern expressed that an unknown but substantial proportion of the new credits have been misallocated (i.e., directed to unproductive/unprofitable projects and companies.)

Woo also worries about the fragility of China’s housing market, as well as the elevated debt levels of poorly-performing state-owned enterprises (SOEs). Indeed, as the next chart illustrates, housing prices seem to have shifted in bubble territory. It also seems that both property developers and households account for a sizable portion of bank lending or collateral. Estimates of the banking sector’s exposure to the broader real estate market vary, but the IMF has estimated that bank lending to this sector accounted for 25% of total bank loans in 2016.