China owes most of its debt to state-owned banks. So they essentially lend money to themselves and set the payback terms - to themselves. Sounds like a perpetual motion machine.
On a related note: China has defrauded American investors of old Chinese treasuries. With interest they owe about $1.5 trillion, which is more than the total U.S. bonds that China owns. Basically, they owe us more than we owe them.
The problem is that the "we" who owns these unpaid Chinese treasuries are American citizens, not the American government.