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Notes -
Building on this- the problem is what the nature of that debt, and the collapse of housing investments for future returns, implies for future economic development.
For example, the implication of the private household debt is how it shapes China's ambitions of escaping the archetypical middle income trap. The classical understanding of the cause is that a country makes good money as an export nation working the lower value chain, tries to work its way up the value chain, but the main basis of national growth (a productive low-cost but also low-income manufacturing worker class that produces exports) goes away before the worker class is able to transitions to a higher-income level of productivity that corresponds with the higher value chain. Some of the country does, but not enough (proportionally), resulting in more stagnant growth, both in terms of national economy and average wages. It's not 'bad,' but it's, well, middling. No longer economically viable for the thing that made it good.
The classical theory of how the higher income countries escaped this is that they transitioned from a manufacturing-export economic model to an internal-consumption model. The internal economics for wages and such are driven more by how the country spends and consumes within its own market, rather than how it exports to foreign spenders and consumers. Ideally, it's to some respects self-reinforcing, for the typical economic multiplication effects that let commerce grow the economy.
This was the basis of the economic question of if China would get old before it got rich. It was referring not to the country GDP as a whole, but to the wealth of the population and its ability to power a consumption-economy model. Could the Chinese public get rich enough in their economically productive years to power a transition to a consumption-based economy, before they grew so old that their savings were instead consumed in end-of-life support?
Well, that's a great deal harder for a family to contribute to if a family's lifetime of savings and investments no longer exists. Like, say, because it was invested in buying an apartment that never was built, or was built and torn down before it could be sold, or which lost its value due to the property crash.
China may yet escape that. It's unclear if the middle income trap is an issue of proportion or absolute number, in which case a proportionally small core of rich-enough Chinese could maybe drive a system. But the middle-income trap would be a lot less likely if a lot more Chinese had a lot more of their lifetime investments have a lot more value.
And, of course, if losing investments didn't contribute to the vicious cycle of ongoing deflation. Which is generally agreed to be bad, but makes individual actor sense if you recently lost much of your money but now find yourself in a position where things look like they will get cheaper the longer you refrain from buying them.
The Chinese local government debts, by contrast, are a bit 'simpler.' These are debts by lower governments, or government enterprises, that the Chinese national government is ultimately likely on the hook for. That's not a macro-economic-structure crisis, 'just' the official debt numbers being radically off and at risk of a liquidity crisis if ill-structured debts create bank runs. Which, technically, might be solved by simply printing more money and forcing the mostly Chinese holders of the debt to accept it, but...
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