Currency experts fear a potentially drastic fall in China's foreign reserves in October, a shock that risks reviving last year's currency panic and further rattling fragile world stock markets.
Capital Economics warns that the headline figure is likely to drop by $100 billion, five times as much as in September and the highest level since the global equity rout in January and February. The official data is released tomorrow in Beijing.
This would inevitably ring alarm bells among skittish traders, already on edge over the US elections and over expected monetary tightening but the US Federal Reserve.
Three-month dollar LIBOR rates have jumped by a half to 0.89 per cent since June as liquidity is drained, raising the cost of borrowing for the world's dollarized financial system.
"There are notable cracks emerging under the surface," said Jens Nordvig from the specialist currency boutique Exante Data.
"The fairly orderly depreciation of the Chinese currency over the last few weeks has been achieved only in the face of an aggressive currency intervention by the Chinese central bank (PBOC). Eventually the cracks will reach the surface," he said.
Nordvig said his group's computer modelling gives advanced warning of intervention by the PBOC on a weekly basis, and this suggests that bond sales are running at a much faster pace than generally assumed. "We expect a dramatic drop of around $80b. This could be a wake-up call," he said.
Reserves are currently $3.17 trillion, down from a peak of $4 trillion. While the figure still looks huge, it is not particularly high in proportion to China's economy and given that it has a managed currency. "Buffers, while still adequate, are shrinking fast, calling for urgent action to address rising risks," said the International Monetary Fund in its most recent Article IV report.
Capital Economics says the 'valuation' effects of both a stronger US dollar and higher bond yields will automatically cut reserves by around $60b in October. The markets are not prepared for this.
Currency intervention by the PBOC to defend the yuan accounts for a further $40b, suggesting that the Chinese financial system is still haemorrhaging capital at a brisk pace despite moves behind the scenes to curtail outflows.
China UnionPay, the national bankcard association, has been ordered to restrict use of credit cards for financial transfers overseas. "There is a clamp-down on cross-border payments for imports that are miss-classified and exceed the real value. They are being careful not to impose new measures publicly because they don't want to fuel concerns," said Capital Economics.
"It is quite obvious to wealthy Chinese investors by now that there is going to be trouble in the property market. The credit cycle is turning and the drivers of recovery are about to reverse. Unfortunately, nothing has improved on the structural side," said the group.
The Chinese authorities have in effect repeated the error they made in 2015 with a state-sponsored stock bubble, which went badly wrong.
This year they have encouraged people to take out mortgages and increase leverage in the housing market, leading to an extreme boom in the big cities of the Eastern seabord. The regulators are already having to slam on the brakes, imposing a range of curbs.
The Chinese economy has enjoyed a 'perfect positive storm' over recent months as credit growth reached its peak, and because fiscal policy was looser than at any time in modern Chinese history.
The team at Capital Economics estimates that the central government deficit ballooned to over 4 per cent of GDP in the third quarter (annualized), four times the level in early 2015. Local governments have also stepped up their net bond issuance to 2 per cent of GDP .
"It is pretty clear that the effective deficit is at least 6 per cent of GDP and probably much bigger if you include shadowing financing, but we don't know for sure how much bigger," they said.
This stimulus is enough to flatter growth and keep the economy humming for a few more months but some analysts say 'second derivative' effects are already signalling a loss of momentum.
The authorities are clearly concerned that they have overcooked fiscal policy and need to restore discipline. They have begun to turn down the spending spigot slightly and have launched a probe into local government bond issuance. Shadow finance is being restricted sharply.
Estimates of foreign reserve erosion in October vary enormously. The consensus figure is $26b. Anything near $80b to $100b would amount to a 'grey swan' event, and would probably be misinterpreted as an even bigger escalation of capital flight than is in fact happening.
Chinese reserve figures have become neuralgic for global markets. Any sign that Beijing may have to step up the pace of the yuan depreciation causes jitters.
Industrial overcapacity in China is epic. The world could not easily absorb the deflationary shock if Beijing is ever overwhelmed by market forces and opts - willingly or otherwise - to let the currency slide as the path of least resistance.
The saga has all the ingredients of the East Asia Crisis of 1998, this time on a vastly greater scale.