The world has bought into the idea of China as an economy that just keeps growing at very high rates. This is supposed to be the axiomatic future. But Minxin Pei, Professor of Government at Claremont-McKenna College in California, has been following a development that doesn't seem to have registered yet in international circle: China's go-go economy may be gone-gone. The reason is the same that tanked the U.S. in 2005-2008: debt. In this case it's disguised bank debt amounting to trillions of dollars.

If the bomb goes off, the economic repercussions will be felt world-wide and could unsettle Chinese politics, as well.

Writing in The Diplomat Pei says that local and regional governments borrowed recklessly for glamorous projects (sound familiar?). But so did the private sector. Reports Pei, "Over-leveraged real estate developers, for example, are struggling to stay a step ahead of bankruptcy. The Chinese media has reported several instances of suicides of bankrupt real estate developers. Some bankrupt businessmen simply vanished. According to a story in the South China Morning Post in May this year, 47 business owners disappeared in 2011 to avoid repaying billions in bank loans."

But the biggest problem is the banks.

"In the last two years, the Chinese State Council has tried to deflate the real estate bubble by limiting bank loans to real estate developers. But banks can skirt such restrictions by ostensibly lending to each other, with the funds ultimately going to financially stretched real estate developers....On the balance sheets of Chinese banks, such loans are technically classified as claims on other financial institutions. According to a recent report in the Wall Street Journal, inter-bank loans today account for 43 percent of total outstanding loans, 70 percent higher than at the end of 2009.

"Disturbingly, none of these huge risks are reflected in the financial statements of Chinese banks."

One thing about financial disasters: they seem to take people by surprise.