Then there are China’s main banks, which have been the source of credit for state-owned industries (SOEs), many of which are running red ink, and local governments that have borrowed heavily—they owed $1.7 trillion in 2011—to launch mega construction projects. It’s hard to believe that these banks, companies, and local political bosses won’t find it much tougher, albeit for different reasons, to conduct business as usual as the economy slows. With $3 trillion in reserves, the Chinese government has plenty of cash to throw at problems, and its central bank can step in when it’s a matter of bad loans made in local currency by local banks. Besides, China has a respectable debt-to-GDP ratio to boot: 50 percent. That’s up from 37.8 percent in 2011, but a far cry from Japan’s at 236 percent or ours at 107 percent. But with China’s banks having extended, at the government’s urging, trillions of dollars in stimulus following the 2008 global economic slowdown, banks’ adeptness at circumventing official lending limits, in a variety of ways and off the books, and the huge expansion of “shadow banks,” the true magnitude of a financial crisis that could be triggered by a sluggish (by Chinese standards) economy may be hard gauge.

No matter their phlegmatic public pronouncements, China’s leaders don’t regard bad bank loans and debt-laden companies and local governments with equanimity. They can’t be unruffled by a slowing economy that could aggravate the problems of creditors and debtors who are already in distress. The government already did a $650 billion bank bailout between 1998 and 2005, and now there are murmurs that another is in the works. Leaders everywhere are good at whistling in the dark and putting a gloss on things. China’s are no exception.

What’s the upshot? No one can predict accurately at what point slower growth will start producing political turmoil on a scale that’s unprecedented in the China that Deng made, what the magic number is, or even whether there’s an iron connection between economic and political crises. Yet the increase in capital flight from China and soaring applications for American and European residential visas by well-heeled Chinese suggest that the elite is hedging its bets. Krugman may be overstating things, but the rebalancing camp is too sanguine.

This much is certain: China’s leaders are in uncharted waters, and because of the diminishing utility of the established formula for rapid growth their maps may be of questionable value. There will be disagreements among them, not just about the appropriate the solutions but also about the roots of the problem. The one point of agreement will be that that tough decisions loom and will have to be taken under circumstances far less favorable than those that have existed during the last thirty-five years.

Rajan Menon is the Anne and Bernard Spitzer Professor of Political Science at the City College of New York/City University of New York, nonresident senior fellow at the Atlantic Council and the author, most recently, of The End of Alliances.

Image: Flickr/SF Brit. CC BY 2.0.