I've read a few articles about China's debt being mainly an...

I've read a few articles about China's debt being mainly an internal matter and could be forgiven. But I don't understand the broader financial logic of it.

My reasoning is that if a debt has to be forgiven, that means the original loan funds are fully spent and irretrievable. In China's case, cash assets worth two and a half years of gdp revenue is lost. How can such a huge financial loss to the govt. not have an adverse effect on its economy, particularly if the country did not benefit from the extravagance? If the country did benefit, there wouldn't be bad debts, would there? Also, where did China obtain the funds to lend in the first place?

I'll use an alternative (parallel universe) US scenario as an analogy. If the Fed Reserve were to lend 100% in gdp worth of funds to US councils/govt. depts/citizens (rather than applying it on QE and war) and these recipients spent it all on God knows what and then confess that they are unable to repay the debt. So the Fed forgives the debt. But the Fed has become poorer by that much. Again we ask where the Fed obtained the funds to lend in the first place. Not only that; the past has repercussions on the future because the Fed must continue to fund future expenditure and meet existing financial commitments such as pensions, etc. But its budget is much tighter now. So how is this alternative scenario (to emulate China's experience) a better situation than the actual one?

The only strategy I can think of is more QE by China and US. But hasn't that delivered only limited success after so many years? Cheers. R.