The first cracks are starting to appear in China’s great wall of debt. The Chinese debt binge of the past 10 years is a well-known story. Chinese corporations have incurred dollar-denominated debts in the hundreds of billions of dollars, most of which are unpayable without subsidies from Beijing.

China’s debt-to-equity ratio is over 300%, far worse than the U.S.’ (which is also dangerously high) and comparable to that of Japan and other all-star debtors. China’s trillion-dollar wealth management product (WMP) market is basically a Ponzi scheme. New WMPs are used to redeem maturing WMPs, while most of the market is simply rolled over because the underlying real estate and infrastructure projects cannot possibly repay their debts.

A lot of corporate lending is simply one company lending to another, which in turns lends to another, giving the outward appearance of every company holding good assets, but in which none of the companies can actually pay its creditors. It’s an accounting game with no real money behind it and no chance of repayment. All of this is well-known. What is not known is when it will end.

When will confidence be lost in such a way that the entire debt house of cards crumbles? When will a geopolitical shock or natural disaster trigger a loss of confidence that ignites a financial panic? There was little prospect of this in the past year because President Xi Jinping was keeping a lid on trouble before the National Congress of the Communist Party of China, which just concluded. With the congress behind him, Xi is ready to undertake reform of the financial system, which means shutting down insolvent companies and banks.

Now the first bankruptcies have begun to appear, as shown in this article. Dandong Port Group, which does business in the hot zone near North Korea, has just defaulted on its debt. This may be the opening default in a wave of defaults about to hit. The question is whether President Xi can implement his planned reforms and clear up insolvent companies without turning the process into something more dangerous that can spin out of control.

The early signs are that this restructuring process will be more difficult than Xi expects and that the potential for panic is higher than at any time since 2008.