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Investors haven’t made much money betting against China these last 20 years. Will 2016 be the year the bears finally cash in?

Even with the slowest growth in decades, 2015 could be spun as a plus-column year for President Xi Jinping. His government dodged a whole slew of worst-case scenarios: a currency crash, chaos in debt markets, deflation and instability as pollution worsens. In the 12 months ahead, though, this relative stability will be hard to duplicate.

My own take: China probably won’t crash in 2016, but the odds of big financial troubles are higher than they’ve been in well over a decade.

For all his bluster about shock therapy and progress, Xi is proving to be an old-school reform obstructionist. I’d be less concerned if his government scrapped an official growth target this year. Instead, it’s betting it all on achieving 6.5% growth after this year’s 7%. That means the Communist Party will spend every ounce of energy on increasing credit and debt, upping monetary stimulus and ginning up stocks -– not curbing the role of state-owned enterprises, shadow banks and corrupt Beijing apparatchiks.

Xi’s government enabling China’s worst impulses would be less dangerous if the Federal Reserve weren’t tightening, emerging markets and commodities weren’t on the brink, Japan’s deflation weren’t spreading and U.S. households were more confident about the future. The external sector is turning on Xi’s go-slow strategy in a big and rapid way.

But then, so is Beijing’s growth model, warns Leland Miller, president of New York-based China Beige Book International, which does a quarterly survey of more than 2,100 mainland firms and 160 leading bankers. For the very first time, Miller’s team found that every sector they track was worse in the latest quarter than the last. As firms seem to be “encountering genuinely harmful deflation,” Beijing’s stimulus tactics are no longer getting traction. Bottom line, “it’s past time the ‘stimulus mafia’ rethinks its pavlovian responses” to slowing growth. Or, as Miller puts it, it’s now a matter of “reform or bust.”

This stimulus mafia faces an absolutely pivotal year, one in which officials decide whether to tame China’s dueling bubbles or fan them. Some, including New York hedge fund manager Jim Chanos, argue it’s already too late. Chanos, the founder Kynikos Associates, rose to fame after predicting Enron’s 2001 collapse. He senses a similar house-of-cards dynamic in Beijing as officials shovel ever-more stimulus into an economy already “addicted to credit.” While Chanos doesn’t fear an “imminent collapse,” he warns China’s trajectory is dangerously similar to Japan’s in the early 1990s -- but “on steroids.”

In June, China’s household and corporate debt hit a record 207% of gross domestic product, a jump from 125% in 2008. These numbers demonstrate the gap between Xi’s pledges of a “new normal” and his desperation to avoid one with rate cuts, looser reserve requirements, easier leverage rules and untold trillions of dollars of fresh credit. Simply put, this stimulus obsession is eclipsing efforts to reduce national debt and financial imbalances.

We’ve seen this movie before. Japan’s total debt-to-GDP ratio was about 176% in 1990 versus 127% in 1980. As stock and housing bubbles burst, debt became a major headwind. This overhang brought about Japan’s “Minsky moment,” or the point where a speculative bubble fueled by excessive debt comes to a sudden and nasty end. When Chanos and his ilk warn China is Japan “on steroids,” they’re really warning of two things. One is how, unlike Japan, China’s reckoning could topple the world economy. The other is how Beijing’s fanatical opacity makes it impossible to know which growth hormones Beijing is using, how much and how dangerous they’ll prove to be when the economy falters.

“One of the biggest concerns isn’t just the level of debt, but the high cost of servicing the debts,” says Long Chen of Gavekal Dragonomics in Beijing. He points to Bank for International Settlements figures showing that China’s annual debt-servicing for corporate and household debt is 20% of GDP. China has now caught up with South Korea and topped the U.S., Japan and the U.K.

AS DEBTS MOUNT, China faces the almost impossible task of recalibrating growth engines from excessive investments and exports to services, while maintaining healthy growth. Xi and Premier Li Keqiang must swap them in midflight with the eyes of a nervous world scrutinizing their every move. Efforts to transition away from smokestack industries are already slamming GDP and denting commodity markets. Accelerating the process requires a level of political will neither Xi nor Li has displayed so far. And the trauma surrounding last summer’s stock market crash in Shanghai may leave China’s leaders even more gun shy.

As Xi tries to increase China’s soft power, the last thing he wants is to cause the next global crisis or recession. The plot thickens when you consider the evolving nature of China’s role in the global economy. As Harvard’s Niall Ferguson told Barron’s recently, it’s absurd to call China an emerging nation when it’s “now the second-largest economy in the world, or the largest based on purchasing-power parity, with an influence on the global economy second only to the U.S. China is sui generis.”

Whether Beijing goes further in the direction of a market economy, gets the state out of its financial system or allows mainlanders to invest freely abroad will have international ramifications like no other economy. It follows, then, that any of these changes poses risks to a one-party state increasingly afraid of its 1.3 billion people. So, expect Xi to talk big about privatizing state-own giants and capital-account liberalization and set ambitious five-year goals, but to change little. “China,” Ferguson said, “has created the biggest middle class in history, but middle-class people want property rights. That implies law courts and officials who aren’t corrupt. The moment you demand these things, you are asking the one-party state to loosen its grip on power. The Chinese are terrified of anything like that.”

Paranoia in Beijing augers poorly for the epochal restructuring needed in 2016. As I stated at the start of this column, the odds don’t favor China collapsing over the next 12 months. But Xi’s complacency, coupled with the stimulus clique dominating his party, suggests China will do more to exacerbate its troubles than address them. While we can’t count 2016 out, those betting on a Chinese crisis may have more luck in 2017 and beyond. Make no mistake, though -- their big payday is coming.

Comments? E-mail us at william.pesek@barrons.com

Comments? E-mail us at asia.editors@barrons.com