China turned in a 6.9% economic growth report for the last quarter. This is slightly better than expected as the fast growing Chinese economy has cooled off over the last few years. Unfortunately the debt accumulated in order to propel that growth is still present. Why are Chinese investors worried about this? The Financial Times writes that they are concerned about a crackdown on debt in the land of managed capitalism.

Investors should have been celebrating reports that China’s economy continued to power along in the second quarter. Instead, they are worried that the country’s growth remains heavily dependent on credit and investment, at a time when China’s top officials are signaling that the days of easy credit could be coming to an end.

On Saturday, Chinese President Xi Jinping stressed the importance of reining in vertiginous debt levels in the world’s second largest economy and encouraging state-owned businesses to reduce their leverage.

As part of this program, he announced a new high-level committee would be set up to better co-ordinate financial supervision and close regulatory loopholes.

In case anyone missed the signal, The People’s Daily – the Chinese Communist party’s official mouthpiece – published a front-page article on Monday, which urged an escalation in the fight against “the risks that come from liquidity, credit, shadow finance, abnormal fluctuations in capital markets, as well as insurance market and real estate bubbles”.

It also warned of the risk of “grey rhinos” – highly probable threats with major impacts that people should anticipate, but often don’t.

A slow tightening of credit is certainly necessary as China’s debt becomes astronomic but a too-rapid tightening could drive many companies into bankruptcy. CNBC writes about debt problems with three major Chinese companies. A fly in the ointment is the complicated series of intercompany loans, similar to what torpedoed Japan’s economy thirty years ago.

Last week, perhaps in hopes of preventing greater scrutiny, Wanda sold off a spate of its hotel and theme park assets to Chinese property developer Sunac for $9.3 billion. But an unusual quirk of the deal is that Wanda is lending nearly half of the total sale figure to Sunac in order to close the deal. Sunac is also meant to take on all loans associated with those assets, but neither company has clarified how much leverage was involved.

On Monday, S&P Global Ratings put two Wanda subsidiaries – Wanda Commercial and Wanda HK – on watch negative as a result of its unexpected asset disposal to Sunac.

China’s massive debt load is one thing but how much of it is hidden is another. The National Interest writes about a possible Chinese sovereign debt default.

The Chinese economy has fallen into what the Bank for International Settlements calls the ‘risky trinity’ – rising leverage ratios, declining productivity and narrowing policy flexibility. All this suggests that, as financial risks grow, the government’s ability to guarantee against these problems will decline.

In past years there has been clear evidence that financial risks constantly rotated to different areas, from the equity markets to shadow banking, from the debt markets to real estate and from digital finance to the foreign exchange market. This results from too much investable liquidity and too few investment opportunities.

It would appear that money keeps moving around in search of profits and dragging the debt risk with it. In the end there may be no place to hide and that is why Chinese investors are worried.