The problem of debt in China is not the bursting of a bubble. It is much worse. As the Middle Kingdom approaches the worldwide record of accumulated debt, productivity losses are becoming increasingly apparent. That is very bad news. Every economy relies of a certain amount of debt. That is an empirical fact. But China’s total debt—the sum of government, corporate and household borrowings—has soared since 2008, and is now almost 300 percent of the country’ gross domestic product GDP. This is far higher than any other emerging market and higher than stablished economies. Total debt in Japan, the poster child for indebtedness, is 229 percent of GDP, the United States 104.17 percent.

In the year 2008, the Chinese government used a massive fiscal injection to insulate its economy against the worldwide crisis. Since then, at least three further stimulus-programs were put in place. Because of China’s policy architecture, these fiscal actions were always in synch with debt expansion.

As government paid for new roads in the provinces, it made provinces build additional public works and banks lend to provinces in order to facilitate these investments. As state-owned enterprises (SOEs) were expected to expand globally, banks were equally expected to render financial help. All these expectations – which still have an overly mandatory component – inflated the debt of all economic agents in the country.

The numbers speak for themselves. While total Chinese debt amounted less than RMB20 trillion in 2002, it passed the RMB160 trillion mark in 2016. By 2009, private household debt was around RMB6 trillion; in 2016 it reached RMB20 trillion. In the same seven years, private corporate debt climbed from RMB9 trillion to RMB30 trillion and government debt went from RMB15 trillion to RMB40 trillion. What about the SOEs? Their debt soared from RMB32 trillion to RMB76 trillion.

Through the relativity prism, all other sectors had much higher debt-growth than the SOEs, which just doubled their stock. But, in absolute terms, it is the SOEs that hold alone almost the half of all debt. And doubling an already high amount of loans and credit from 2009 to 2016 is impressive as such. To further put this into perspective. In the same time-frame, the debt-to-assets ratio of private enterprises decreased from 56 percent to 52 percent. In the SOEs, it spiked from 57 percent to 63 percent.

To complete this picture: The productivity of debt is plunging. In the year of 2008, for each renminbi in credit, an SEO could turn 0.7 RMB in productive work. Today, it is barely 0.25. Also, the overall productivity of labor is stagnating. In some sectors and in the lowest brackets of income, it is even falling.

Many economic scenarios about China are concerned with the bursting of the debt bubble. Since more than half of China’s debt is owned by SOEs and private property developers, as the economy slows and housing prices fall, many of these loans will prove unpayable. Banks report that bad loans are just 1 percent of their assets and their auditors insist that the banks are not lying, but investors price banks’ shares as if the true level is closer to 10 percent. With the failing of SEOs and property as collateral, many provinces will not be able to sustain their debt. The whole system implodes, so goes this version.

This picture, however, might be getting some things wrong. If companies and provinces fail, the Chinese command-and-control economy will have little trouble in saving and bailing-out institutions as well as rolling-over debt. If that does not work, it can redistribute this debt with a massive supertax on the citizens. These two instruments – which are also becoming increasingly acceptable to so-called western economies – should be enough to stop any bursting. But they are not enough to address the problem of productivity-loss. And this problem is not a future scenario. It is already real.

Economies relying on debt and artificially low interest-rates tend to report aggregate growth while stagnating or even shrinking on a microeconomic level. But without the microeconomic growth of labor and capital productivity, there is no wage growth, no expansion of the private capital base which invests in the future and no establishment of a solid middle class. In an emerging economy, as China is, this could even lead to a middle-income trap. If a crisis hits or a bubble bursts – two events that are possible but not probable for China in the next couple of years – without productivity growth to compensate, asset values deflate and the effects of debt become even more pressing. This is the real bad news behind the actual debt situation in China.

Henrique Schneider is chief economist of the Swiss Federation of Small and Medium Enterprises. He can be reached at hschneider@gmx.ch