BY JEREMY PAGE

BEIJING—China begins a once-a-decade leadership change in 2012 that could paralyze decision-making, stir infighting and expose flaws in an ossified political system—just when urgent action is needed to steer the world's second-largest economy.

The retirement of a generation of Communist Party leaders led by President Hu Jintao, expected by November, will come at a critical time for China as it grapples with flagging external demand, massive local government debt, rising labor costs, and a potential property-market collapse.

The successors, expected to be led by Xi Jinping, now vice president, will have to address systemic problems ignored over the past decade ...