Is it time to worry about china—again?

The sheer chaos in Chinese stocks last week—and the lame attempts at recovery—have all eyes on the People’s Bank of China (PBoC).

No doubt PBoC governor Yi Gang will continue adding liquidity to tame volatility. But with growth slowing, US President Donald Trump lobbing bombs at global trade and domestic credit strains growing, mainland shares are in for a crazy ride.

Last week’s $514 billion equity loss was a case in point. It erased wealth equivalent to Belgium’s gross domestic product (GDP).

It’s also a microcosm of what’s afoot in Asia’s biggest economy, and why global markets should worry.

For starters, PBoC will find it’s out of its element. Monetary manoeuvres certainly worked their magic in the summer of 2015, a ruinous period for Chinese shares.

With big liquidity infusions, regulatory tweaks and macroprudential measures, PBoC masterfully avoided a globally systemic event. The cracks that pushed China to the brink of crisis didn’t disappear, though. They merely went dormant. Until now, that is.

No, China isn’t likely to crash anytime soon. But the ferocity of recent selling is a warning sign flashing bright red about deficiencies below China Inc.’s surface. Bright enough that president Xi Jinping’s government would be negligent not to take bold actions. Some of the deleveraging is constructive—proof Xi’s team is taking froth out of the system. Yet fresh credit is still pouring into the system, fanning excesses.

Xi’s team has been slow to rein in state-owned enterprises, up transparency in the financial system, clamp down on shadow banks and create a mechanism to dispose of distressed assets.

Recalibrating things is simply beyond PBoC. “The scale of its actions will not be sufficient either to juice up growth or to restore bullish sentiment in the equity market,” says analyst Long Chen of Gavekal Research.

Beijing is running into a cart-and-horse problem. For all the confidence that Xi’s Communist Party will tackle China’s daunting challenges, there’s plenty of reason to worry it’s moving too slowly and too haphazardly.

Beijing appears to view MSCI adding A-shares to its emerging market indexes as a reform in itself. It only increases the risks for global markets when China’s debt reckoning arrives. And it will. No industrializing economy has avoided a crash. Not America, nor Britain nor Japan nor the eurozone has steered clear of this inevitability.

China, meantime, has three obvious bubbles that are increasingly feeding one another: borrowing, credit and property.

In most economies, the first two would be one and the same. China’s debt-to-GDP ratio surged from 160% in 2008 toward 300% today.

On top of that is an epic ramp up in credit growth. In the eight years after the 2008 “Lehman shock”, China added tens of trillions of dollars of credit, lots through highly opaque shadow banks.

These vulnerabilities are running into a Trump White House waging an escalating trade war.

Last week, President Trump announced another $200 billion of levies on imports, prompting China to announce $50 billion worth of its own tariffs. The risk is that as Trump attacks China’s main growth engine, he’ll throw a lopsided economy off balance.

“It’s the most important and difficult challenge China faces at present,” says Diana Choyleva of Enodo Economics.

Trump might shock the Asian supply chain enough to slow Chinese growth, perhaps markedly. That would send shockwaves through state-owned enterprises circles, making it harder to make debt payments. The fragilities in the system mean that a couple of modest defaults could cause credit channels to seize up. That, in turn, would create new problems for stocks.

“In a nervous market,” Chen says, “fears have been heightened by the degree of leverage in the stock market. Increasingly over the last couple of years, major shareholders in listed companies have pledged their equity holdings as collateral for bank loans.”

It is estimated, Chen says, that roughly 10% of total A-share capitalization has been posted as collateral. For some smaller companies, more than half of outstanding shares have been pledged. The knock-on effects of any sell-off could be extreme.

PBoC will surely do its best to keep that from happening. But until Xi’s team gets a handle on cracks in China’s foundations, its financial system—and markets—won’t be ready for prime time.

William Pesek, based in Tokyo, is a former columnist for Barron’s and Bloomberg and author of Japanization: What the World Can Learn from Japan’s Lost Decades.