Of all the credit bubbles in all the economies in all the world, Xi walks into mine.

(Originally published Aug. 29 in “What in the World“) If she can escape the stilted conference rooms long enough during her visit this week to Beijing, U.S. Commerce Secretary Gina Raimondo would be able to witness a classic credit crisis unfolding.

The latest symptom is that China’s small- and mid-sized enterprises, the key employers in any economy, are suffering the knock-on effects of the country’s property crisis—triangular debt.

Triangular debt is a byproduct of any economy in a credit crisis and was a common feature of the Asian financial crisis in 1997-1998. When one large group of heavily indebted companies goes broke, it not only stops repaying its debts to banks and bondholders—it also stops paying its bills. That can cause contractors in otherwise healthy sectors to go broke, infecting them with the same contagion. Then they stop paying their debts to banks and bondholders, increasing the pressure on them, and forcing them to withdraw credit from other healthy borrowers, which in turn can push them over the edge, too.

The companies that supply China’s teetering property developers, according to research cited in The New York Times, are owed more than $390 billion in unpaid bills. That’s $390 billion that isn’t being used to pay employees, buy supplies, invest in expansion, or pay their own bills.

In a classic, triangular credit crunch, the SMEs are forced to lay off employees, who then can’t afford to pay their own credit card bills and mortgages. Those workers also stop spending. In China, that’s already happening, as cautious consumers start to wake up to the fact that they’re in a deflationary spiral.

Complicating the situation for Beijing is that banks and bondholders aren’t the only ones facing earth-shattering defaults. China’s on-again, off-again efforts over the years to rein in over-investment in property by limiting lending by banks gave rise to a massive industry dedicated to channeling savings into property. These “shadow banks” aren’t regulated by the People’s Bank of China and, if they aren’t publicly listed, overseen by the China Securities Regulatory Commission. They can thus often operate in the regulatory shadows, with the extent of their credit to property—and the potential losses to them and their customers—unknown to officials.

Some of the shadow banks are listed, however, notably big trust companies, giving the public and Beijing a glimpse into just how bad things are going for them. And the property contagion is now catching among these trust companies, as The Economist now explains, belatedly as is its trademark.

As explained in this space earlier this month, trust companies are part of China’s “shadow banking” system, non-banks that replicate banks’ role in providing credit to the private sector. Growth in these trust companies exploded in the past decade as Beijing tried to restrict property lending by banks while encouraging heavily indebted local governments and developers to refinance bank debt by issuing bonds.

Trust companies were the loophole around those bank restrictions. They operate something like banks, but instead of taking deposits, they sell investment products, then either lend that money to property developers, buy property-linked bonds, or take stakes in property projects. Only because anyone with a sound property project could still get funding from banks, trust companies are largely left investing in the riskiest projects that are most exposed to the property downturn and most likely to go belly-up.

The Asian financial crisis coincided with the impact of one of the most severe El Niño weather events ever recorded, causing droughts and storms that killed an estimated 23,000 people. China’s crisis is also happening against a backdrop of severe weather: thanks to climate change, China has experienced a summer of devastating floods that have wiped out 40% of northeast China’s rice crop.