How do you measure debt sustainability (private and public)?
(1) How much debt do you have relative to your economy?
Debt % GDP.
(2) How fast is your economy growing?
(3) How large is your deficit spending? or how fast are you accumulating debt?
For China, like all emerging economies, economic growth trumps all. Mature economies like the United States and EU grow at around 1-2% on average. 4% is spectacular, anything over 4% is unsustainable and will lead to problems.
For emerging economies like China they can sustain 10, 20% growth over a period of time and that kind of growth forgives a lot of blemishes. Now China hasn't seen 10-20% growth for several years now. Currently their GDP is shrinking and they've announced double digit decreases in imports and exports. They also have a deflation problem. This along with the Debt, structure of that debt, and their demographic bomb on the near horizon. Economists are starting to consider that their emergence is done, and they will transition to a more adolescent economy. Adolescent economies have lower growth, and this lower growth exposes a lot of troubles. Japan's economy lost several decades of growth as they transitioned from emerging to an adolescent economy. The United States had troubles making this transition too but did it in the early 1900's. If China is making this transition now, then they no longer will have the spectacular growth, and big changes will occur. If China can put off this transition then their current debt is less of an immediate concern.
And why is corporate debt so high in China, and did the Chinese government policy contribute to this?
Well first off China's private debt is often a fig leaf for government debt, because China's government is heavily involved in pseudo ownership of it's conglomerates. Western Analysts believe about 2/3rds of all corporate debt in China is held by state-owned enterprises.
The idea is it takes money to make money, and when an economy has sustained growth at 10+ % almost any investment is going to make money. The Chinese government encouraged it's companies to leverage themselves with cheap credit, in this way China was encouraging more growth. Growth is everything.
The largest debt concern for China isn't just it's private debt. The real concern is the trillions of dollars owed by local governments, mostly off-the-books. When China has faced debt troubles such as the collapse of large real-estate investment companies such as Evergrande in Dec 2021, and Country Garden Aug 2023. When the government has had to step in to prevent a collapse, the National government has had the local municipalities assume this debt. These local governments are the most leveraged, and the issues they've sacrificed to address, are not solved. China's real-estate crisis is still looming and their doesn't seem to be a forthcoming solution.
Again though growth makes everything easier. So that's what economists are watching. Will China slip into recession, or will their economy return to growth and how much.