With China at risk of tipping into prolonged stagnation and a spiralling property crisis threatening financial stability, there is growing unease over why its leaders are not rushing to revive the world’s second-largest economy. With consumer spending slowing, shaky property prices and flagging exports amid the US drive for de-risking weighing on growth, the country is facing a perfect storm of challenges.

Many investors, analysts and diplomats point to signs that Beijing seems hesitant to deliver the bold policies needed to prop up an ailing post-COVID recovery. Some see an ingrained hesitancy in the Communist Party leadership to make big changes that might shift power from state to private hands. Others say the government is stacked with President Xi Jinping’s loyalists and adamantly opposed to measures that would boost competitiveness, including reforms to its tightly controlled economy.

One major challenge is that China’s economic engine, construction-driven investment, has peaked. Investors who levered themselves to the hilt on inexorably rising property prices have run into severe problems, and local governments that poured money into high-risk infrastructure projects are now facing a debt crisis. And China’s productivity has stalled, with total factor productivity – a measure of output per unit of inputs – flattening out since 2008 and now lagging behind global rivals.

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The slowdown has rippled outward, with the weakening yuan hitting foreign companies’ shares in Chinese markets and slashing profits in exports. Many analysts fear China is starting a “balance sheet recession,” with banks’ bad loans poised to hit new records and households reluctant to take on more leverage. The bad loans at the 10 largest lenders now stand at 4.8 trillion yuan, or 17% of GDP, and their capital buffers are far below industry averages.

In response, Beijing is trying to cut down on speculative borrowing in the property sector by limiting the amount that developers can borrow from banks and requiring lenders to have a better grasp of their exposure. But it may prove a hard act to pull off. Mortgages make up a significant portion of the total loan book at the country’s biggest lenders, including a combined 34% at Postal Savings Bank of China Co. and China Construction Bank Corp., according to Bloomberg data, and the real estate market remains an essential anchor for China’s economy.

Amid a global push for de-risking, and amid the slowdown in commodity imports and tourism that followed the COVID-19 outbreak, many investors wonder whether China will revert to the export-led model of its past. Even so, some experts say that the country will remain a key player in global markets and is unlikely to lose its dominant position as the world’s top manufacturing and trade partner. Besides its impressive growth, it also boasts a rich cultural heritage and some of the world’s most famous ancient sites, such as The Great Wall and the Terracotta Army.