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China's debt is a staggering $24 trillion, or 247% of annual gross domestic product as of last year, representing an increase of an astounding 465% within the past decade, but its gold holdings have soared.

Total borrowing by both the country's financial and non-financial sectors was just 78% of GDP in 2007 and has since increased to 309% of GDP, according to economists at Nomura, led by Wendy Chen and Yang Zhao.

Some observers, however, think that the leverage in China is still far below that of what the U.S. was in 2007 prior to the financial crisis. However, they neglected to note that the property sector increased by 4.5 times between 2000 and 2015 in the biggest cities.

Experience suggests that such a rise is both unsustainable and may signify a bubble. A sharp drop in property prices would increase the leverage to astounding levels, thereby threatening China's economy.

The International Monetary Fund has forecast that China will have a moderate budget deficit of 3%, which sounds very comfortable.

The IMF has merely considered the governments' debt so as to arrive at that figure, which accounts for less than 20% of public spending.

But local governments and municipalities in China account for more than 80% of public spending.

When the total amounts are considered, the figure balloons to 10%, according to the IMF, whereas, Goldman Sachs thinks that number is more like 15%.

These numbers are far worse than what was seen in the U.S. right before the financial crisis of 2008. 

Most state-owned companies are taking on more debt in order to pay off earlier debt. Bad loans have soared.

The government hasn't allowed any major firms to become bankrupt in order to prop up its job numbers. If China starts to allow companies to fail, the unemployment rate could skyrocket.

With growth lackluster, it appears highly unlikely that China will be able to manage its debt overhang.

In light of the forthcoming five-year congress of the communist party, the government won't want to push through unpopular reforms, though, they are necessary. Chinese debt has reached such a high level that observers think that in order to raise the GDP by $1, China must take a credit of $4 which is most certainly a sign of an impending crash.

Legendary investor, George Soros finds an "eerie resemblance" between the U.S., prior to the financial crisis, and the Chinese situation.

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"It's similarly fueled by credit growth and an eventually unsustainable extension of credit," he told the Asia Society in New York in April, Bloomberg reported.

Similarly, BlackRock Chief Executive Laurence Fink has also raised concerns about the Chinese debt level.

Well-known short seller Jim Chanos, who is betting against China, said that it "is the gift that keeps on giving on the short side," CNBC reported in May.

China is gradually reducing its holding in U.S. Treasuries. In July, it held $1.22 trillion in U.S. bills, bonds and notes, a drop of $22 billion from June.

That was the largest drop in three years, according to Treasury Department data, which was released on Sept. 16.

There are many who think that China's mammoth holdings of U.S. Treasuries will restrict it from dumping them.

However, Bocom strategist Hao Hong said, "The gold reserve on the China balance sheet has almost doubled since 2009. By holding gold, and moving away from a U.S.-dollar-centric system, we actually require less U.S. dollars," Zero Hedge reported.

China's gold holdings, which was a paltry 395.01 tons in the second quarter of 2000 has risen sharply to 1,828 tons, according to the World Gold Council.

The Chinese are propping up the gold backed-yuan as a fierce competitor to the dollar.

"The recently opened Shanghai Gold Exchange differs greatly from the London Gold Exchange in one fundamental area: In Shanghai, buyers take physical delivery of gold, whereas London deals in paper-based gold futures contracts. In Shanghai, 'what you buy is what you get,' whereas in the West, gold is a virtualized commodity," Tom McGregor, Commentator and Editor at China Network Television told Sputnik International.

Similar to that of other developed nations, the Chinese debt has also reached bubble-like proportions. However, the Chinese are relying on gold in a big way, as witnessed in their latest holdings.

China knows that, during the next crisis, those nations with a large gold backing will not only survive but will become prosper.

The country is most certainly going to increase its gold reserves even further.

If even just a portion of its U.S. Treasury holdings are shifted to gold, the yellow metal will go parabolic. Therefore, keep an eye on gold and be prepared to buy it when we reach that last dip, before the bull run.

This article is commentary by an independent contributor. 

Chris Vermeulen is full-time trader and research analyst for TheGoldAndOilGuy Newsletter.