[jessaustin]

If the situation is how you describe, the most important question would be: who is holding these securities? If it's just some random Chinese savers looking for higher interest, there is not necessarily a problem. Of course, a similar situation was a problem in the USA context in the previous decade, but that was due to the particular circumstances. Those who had extracted rents by pretending to "insure" MBSs had used a portion of those rents to pwn the USA political structure. When it was clear that MBSs were worthless, they chose to destroy our system of representative government rather than taking bankruptcy. That wouldn't be an option in China, and it certainly wouldn't be an option available to random small Chinese savers.