Already jangled nerves were given another jolt overnight as news leaked of an enormous rights issue by China’s central bank. The offering would add to as much as $45.6 billion in fundraising announced by China’s biggest banks, and come amid the longest losing Hang Seng streak in over a decade. China’s largest lender by customers, China Agricultural Bank, is also in the midst of a $20.1 billion initial public offering in Shanghai and Hong Kong.

A sale by Bank of China would “damage market sentiment and banking shares further because we’ve already been flooded by share offerings,” said a Shanghai-based analyst at Northeast Securities Co. “This is a surprise given that they just completed the bond sale.”

Fears are growing that, in the light of China’s sudden government-imposed credit squeeze, the BoC may have either overlent or be holding subprime debt on a grand scale – or both. In 2009, Bank of China granted more loans than any local rival.

On the other hand, they may be trying to keep up with domestic demand: ICBC, Construction Bank, and Bank of Communications Co., the nation’s other big publicly traded banks, face a capital shortfall of about $70 billion as they seek to comply with regulatory requirements and meet loan demand. China’s government has nevertheless stepped up measures to drain liquidity on concern that last year’s credit boom will create an asset bubble. Policy makers aim to cap new loans at 7.5 trillion yuan this year – down 22 percent from 2009.

The problem for a global economy dealing with China is that (1) information leaks rather than flows (2) Beijing rarely gives a clear explanation of strategy and (3) it is a vast nation being run as an increasingly oil-and-water mix of rampant capitalism and central command. Property, the currency, and now liquidity are all in the air at the same time – and few people know whether to interpret this as inscrutability or incompetence.

The Slog’s abiding belief is that the latter is more likely in most things involving human beings. And human beings brought up with little or no concept of floating currencies, asset bubbles and demand curves have added weight to this judgement in most of their recent actions. Somewhere between economic slowdown, a rising yuan, industrial unrest, property boom and a credit squeeze, there is a way through this. I lack confidence that the Beijing politburo knows what it is.

Some time back, The Slog asked if China might have its own 1929 in 2011. I think it’s still a valid question.