China's non-government sector debt levels are quite high by international standards. Outstanding corporate and household debt has exceeded twice the nominal GDP since 2016. So far, China has been able to contain the emergence of major financial risks. However, in the way that Japan and Spain, having reached similar levels in the past, experienced bubble bursts and financial instability, it is impossible to definitely say that China will not experience a similar situation. In particular, the current economic downturn triggered by the Zero-COVID policy and the real estate slump are causing the fragility and faultline of China's financial system to become apparent in some local cities, and the country has entered a phase that requires caution.