Pettis assumes, without justification, that the assets owned by the Government of China would be more productive in private hands, and thus calls for the government "to begin to sell off government assets". That's an ideological position. The privatization experience of the USSR indicates otherwise.

China's government debt situation isn't bad.[1] Government debt / GDP is less than half that of the US. Japan is much worse off, with the world's highest Government debt to GDP ratio.

What's really likely to hit China is the same thing that's hitting the rest of the developed world - it just doesn't take all that many people to make all the stuff. This is a killer for an export economy. This hit in Japan 20 years ago, in the US 10 years ago, and is starting to hit in China.

The biggest suggestion of trouble is that so many wealthy Chinese are trying hard to get assets out of the country. This fuels the Vancouver and London real estate booms, and in a lesser way, Bitcoin.

[1] http://www.tradingeconomics.com/country-list/government-debt...