A tale of two halves

"I think in many respects these projects are built on sand and the rates of return are impossibly optimistic and I think we will see a cascading of local government debt and it will retard growth perhaps significantly," he says.

George Magnus, senior economist at UBS Investment Bank and recent author of Uprising: Will Emerging Markets Shape or Shake the World Economy?, says to avoid this outcome the Chinese government needs to persist with its credit tightening policies so as to avoid over investment.

"If the authorities wanted to suppress credit and price inflation for the next several years, monetary tightening would have to continue through 2012. I don't see this happening," he says.

"In the end - and this may be in 2012 or 2013, maybe even later, I think there will be a hard landing, which will take the form of a good old fashioned investment bust."

Kuhn, however, believes the Chinese leadership still has financial firepower to determine what happens to the economy in terms of any landing it may have.

"They will make extraordinary efforts. Whatever they can control, they will control and they have the foreign reserves to do it. These reserves are still 50 percent greater than even the most extreme estimates of local government indebtedness," he says.

He rules out any possibility of hard landing before 2012 but says there could be problems after that if the government is not successful in switching to a more consumption-based economy in accordance with the 12th Five-Year Plan (2011-2015).

"There could be problems in the medium term. The question is how fast can the switch be made to the domestic consumption model," he says.

A customer selects vegetables at a supermarket in Jiujiang, Jiangxi province. The consumer price index hit a three-year high of 6.4 percent in June. [Hu Guolin / for China Daily]

Wang Jianmao, professor of economics at the China Europe International Business School (CEIBS), based in Shanghai, says he was more fearful of the China economy heading for a hard landing two years ago as he then felt that the stimulus package might overheat the economy.

He says the government has recognized the risks by implementing interest rate hikes and credit-tightening measures.

"The most risky and dangerous thing is that if you don't know there is a danger. Now it is very clear. The top leaders in China know very clearly there is a danger of a hard landing," he says.

Halper says the Chinese government has many advantages over the Obama administration in Washington in addressing economic problems.

"They have hard currency and the capacity to really crack heads. If they are honest with themselves and properly analyze the problems they face then they can act on those issues, more so perhaps than has been demonstrated in Washington," he says.

China does not operate in a vacuum. One of the biggest risks to the Chinese economy remains a downturn in the major Western economies, either as a result of the US failing to recover or a further unwinding of the euro.

Spence, the Nobel economics prizewinner, says anything that affects global demand could in the end be the key determinant to whether China's landing is soft or hard.

"There is still risk. Both Europe and America have the risk of another downturn which would adversely effect China," he says.

Chen Weihua contributed to this story.