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An employee of the Industrial and Commercial Bank of China Ltd (ICBC) counts money at one of the bank's branches at the Shanghai Free Trade Zone in Pudong district, in Shanghai September 24, 2014.Reuters file

As the worsening debt woes at gigantic corporations spread unease on the markets, the Chinese government has its task cut out. To begin with, the government has asked media companies to tamp down reporting on the sick behemoths. This is not surprising in a rule-by-diktat system, but what should worry the rest of the world is the sheer scale of China's debt crisis.

Is the corporate meltdown China struggles to keep under the wraps the precursor to a financial crisis like the 2008 debacle? In October, Chinese central bank governor himself spooked the markets when he said the country might be nearing a "Minsky moment," as he drew attention to high corporate debt. The last time the 'Minsky moment' cropped up in financial discourse was in the aftermath of the 2008 global crisis.

Analysts are wary of China's rising credit to GDP ratio, booming corporate and household debt, cheap credit that feeds an overheated property market and the rise and fall of a multitude of ponzi schemes. Steve Keen of Kingston University put the looming crisis in perspective when he wrote that China's credit bubble is easily the fastest growing in the history of capitalism.

IMF warning

The IMF, in early December, warned that China's debt crisis can easily spill out and affect the whole of Asia and beyond. The Fund said China's dependence on debt was growing at a "dangerous pace", adding that the thrust on GDP expansion and jobs growth was causing systemic risks. The country's total debt is more than three times its GDP.

According to China's central bank, the overall gearing ratio was 247 percent, a level that breached international standards. Gearing ratio can be loosely defined as the debt-to-capital ratio that gives an insight into the degree of leverage a company or government has got when it comes to managing a downturn. Higher gearing ratio means a greater debt to service and less wiggle room to manage a crisis. All the same it's a comparative tool, not a measure that's got any absolute inherent value.

High ratios in china have been in the making over the last ten years. They stem from the aggressive fiscal stimulus measures the government launched in the wake of the 2008 crisis. According to some economists, China has been buying time since then, risking a relapse any time.

Banking system fuels debt spiral

This is how it unfolded. Global trade collapsed in the aftermath of the 2008 financial crisis, leading to a huge slump in China's exports. This led to massive job losses that threatened to precipitate a social unrest that the communist regime could ill afford. A fiscal package that ran into more than $600 billion was the government's answer to this looming crisis. Notably, unlike in other economies, China implemented the fiscal stimulus plan through the banking system and not through the government spending route. In effect the banking system fuelled a debt spiral while real asset values declined. The credit boom led to mammoth infrastructure projects without any productivity while businesses that fed on cheap credit did not turn in revenues, profits and jobs.

"Since 2008, non-financial sector debt-to-GDP has risen at breakneck speed. Encouraged by government calls to support economic growth, companies gorged on cheap credit. Analysts estimate that two-thirds of corporate debt is in the hands of China's sprawling state-owned enterprises, many of which are unprofitable and inefficient," says a Reuters analysis.

Parallels have been drawn between the Chinese debt problem and the US debt pile at the time of the Lehman Brothers crisis that erupted in 2007. At the time of the greatest financial bubble burst of modern times, the US debt levels were 170 percent of the GDP. China's total debt is more than 250 percent of the GDP now.

Housing market bubble about to burst?

There's also this curious connection the Chinese debt problem has with the housing market -- the same fountainheads the 2007 crisis sprang from. With home prices soaring, the young Chinese are pledging monthly mortgage repayment commitments that are larger than their monthly salaries. They then try to meet the shortfall by leveraging more debt in dangerous ponzi schemes. This is mostly done by either borrowing a corpus which is then deposited with ponzi sharks who promise returns to the tune of 20 percent and higher annually. Such rates are alluring in an economy where you get only around 2 percent for deposits and home loans cost only around 5 percent annually.

All the risk is happily taken by Chinese home buyers who are simply upbeat on rising valuations and what is seen as a perpetually soaring market. But for how long? Is China immune to the situations that led to the sub-prime mortgage crisis that hit the US? The triggers might be different in different economies but China is certainly on a risky path.

According to a report by the Institute for Advanced Research at Shanghai University of Finance and Economics, the ratio of mortgage debt and disposable income will soon reach the same dangerous level the US witnessed in 2007.

The spectacular collapse of funding platform Qbao offers an insight into the obvious linkages. Zhang Xiaolei-promoted Qbao illegally raised at least $7 billion from the public and then went belly up late in December. The high-profile promoter, who was once the state media poster boy, surrendered to the police after the scheme went kaput. The 20-odd companies that he created -- from e-commerce enterprises to real estate firms -- simply failed to generate enough money to pay off the exorbitant interest rates the grand Ponzi scheme offered to millions of its investors.

The debt crisis, along with the Xi Jinping government's crackdown on unmitigated corporate expansionism, have put many Chinese bigwigs who aimed to conquer the world on the backfoot. The meltdown at the ambitious LeEco, cutbacks and sell-outs at mammoth companies like HNA group and Dalian Wanda jolted the markets. Trading was halted at six subsidiaries of conglomerate HNA group following a free fall triggered by debt woes. Another flagship, Dalian Wanda saw debts rising and revenues dropping, and had to sell overseas properties including the ambitious London residential project.

"We have too much debt in our system. If something bad happens, we have learned from the US financial crisis, and we will move very swiftly to contain the risk so that panic caused by a small institution does not spread," the deputy chief of China's Regulatory Securities Commission told world leaders at the Davos Economic Forum on Tuesday.