China may be implementing a series of easing measures to keep its economy expanding, but some analysts believe the mainland should let growth slow instead.
"China's potential GDP (gross domestic product) growth rate is no longer 7-8 percent, because of lack of productivity increases [and] because of their changing demographic profile and aging workforce," Ruchir Sharma, head of emerging markets atMorgan Stanley (NYSE:MS - News) Investment Management, said last week.
China set its 2014 GDP growth target at 7.5 percent, unchanged from 2013 - a sharp slowdown from the double-digit rates of previous years.
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In the first quarter of 2014, the mainland's economy grew an annual 7.4 percent, slowing from 7.7 percent in the last quarter of 2013, and marking the slowest annual growth rate since the third quarter of 2012.
"To try to hit a growth target of 7-8 percent is taking on more and more debt," a precursor to likely economic trouble ahead, Sharma said.
China's debt-to-GDP ratio has risen from around 160 percent in 2008 to over 240 percent, he noted. At the same time, the country last year needed to borrow $4.00 to create $1.00 of GDP growth, up from around $2.00 of borrowing for $1.00 of GDP growth just five years ago," he said.
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"This is one of the most rapid increases in debt that any country has seen in recent history," Sharma said. "It's taking more and more debt to produce less and less GDP over time."
He expects China's economic growth to slow sharply ahead.
"That's going to test the reform mettle of the new administration out there on whether it's willing to bear the brunt of the economic slowdown now, because it leads to a better future and cleans up the debt mess, or it engages in more stimulus to keep the economy growing, which we think leads to even more problems down the road," he said. "The last thing China needs is more debt to keep growing."
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But many analysts expect China's leadership will continue to take easing measures rather than let the economy slow further.
"Policy makers seem to have put deleveraging on the backburner," Credit Agricole said in a note Friday.
"The government has announced numerous stimulus measures, and the PBOC (People's Bank of China) has injected liquidity and used moral suasion to pressure money market rates down and facilitate lending," it noted. It expects China to begin cutting its required reserve ratio for banks in the first quarter of next year to support growth.