China: New hope, or more debt?
China's economy is slowing, local authorities are piling on debt and banks are setting aside more money as loans sour.
The economy could slow below the government's target of 7.5 per cent. Anywhere else, such growth would be to die for, but for China anything below seven per cent could see millions joining the jobless - a prospect that could lead to social unrest.
What's the solution? More stimulus or allowing the yuan to depreciate against the dollar.
China has announced a total of 8tn yuan ($1.26tn) of "stimulus projects" to try to boost confidence in an economy that appears to be cooling faster than expected.
That could be a lot of hot air. For now, there is little appetite to do anything. China is rudderless until a new Communist Party leadership is installed.
"They are sending out the message that they want to stimulate the economy, but in reality that is not going to happen," influential independent China economist, Andy Xie, told the Reuters news agency. "About the only tool left to them now is propaganda."
The Chinese leadership has been reluctant to throw money at its economic problems, like it did during the economic crisis in 2008. Then it spent 4 trillion yen or $630bn dollars to register growth of more than 9 per cent.
So why not spend the money? Does Beijing know something that it isn't telling the rest of the world?
China's debt-to-GDP-ratio stands officially at 16.3 per cent. The problem is that excludes China's hidden liabilities. Debts held by ministries and provinces. Analysts put Beijing's debt in the region of 90 to 160 per cent.
According to China's National Audit Office, local governments had amassed about $1.7tn of debt by the end of 2010, about 27 per cent of the country's GDP , but other estimates put the number at almost twice that.
Jonathan Kaimah goes on to write in his Foreign Policy article, China's Debt Bomb, that the municipality of Tianjin could be the potential ground zero for the Chinese real-estate meltdown.
The city borrowed almost $64bn to build industrial and residential parks to attract big business.
In fact after China's massive stimulus programme there has been some blowback. Chinese banks are going after some debtors in the steel industry.
By the end of last year, China's steel industry had a total debt burden of $400bn - around the size of South Africa's economy. Some of China's leading mills alone owe 200-300bn yuan ($32-$47bn), according to the China Iron and Steel Association.
It goes without saying that such a huge buildup of debt could cripple the economy, damage global prospects and seriously erode confidence in Beijing.
The new leadership could have a plan and come up smelling of roses.
"A bad year is not the end of the world for the Party. The new leaders come in, turn things around in 2013 and look like heroes," Tim Condon, head of Asian economic research at ING in Singapore, told Reuters news agency, adding that aggressive stimulus would thwart policies to fight speculation and rebalance the economy.
"What they seem to be saying is that they are not going to take the easy way and double down on the command and control policies, but stay on the course of market-oriented reform," Condon said.
"That's a really positive story - if it's true."
Follow Abid Ali on Twitter: @abidoliverali