A Citi report on Monday estimated that the deleveraging pause will increase China’s debt-to-GDP ratio by 12.3 percentage points to 274.5 percent by the end of this year, reversing a small decline in 2017.

“The markets are right, in our view, to feel more concerned about the sustainability of China’s debt and the increased financial risks,” Citi said.

Andrew Collier, managing director at Orient Capital Research in Hong Kong, said that there’s likely to be “leakage” in China’s debt economy — meaning that those who need credit will find a way to get it through the shadow banking system.

“So I’m not optimistic that there will be significant deleveraging in 2019 and that means that the existing debt level is likely to maintain at the current levels or even rise, which could be disastrous,” Collier said at a conference on Oct. 10.

“At some point you’re going to have a defaulting situation in different parts of the system,” he said.

Collier raised the possibility of municipal government defaults, which he described as “more or less unheard of in China.”

Ray Heung, senior vice president in the Financial Institutions Group at Moody’s Investors Service, said the Chinese government will continue to support the banking system, focusing on larger banks — but attending to smaller ones that have a relationship with a local government or play a social role.

“We do think that one of the overriding factors is actually the social stability in China,” Heung told reporters on Oct. 10.

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