Timetable for reform(2)

Magnus, who presented similar arguments in his book, Uprising: Will Emerging Markets Shape or Shake the World Economy, also challenges Liu's view that investment making up half of GDP is normal for a developing country.

"Saying that the 50 percent rate is okay because China is a developing country doesn't fit either history or economics, so I don't know what the basis is," he says.

"If this were sound advice, then development would be easy. Every emerging country should have such an investment rate. The issue is not so much the rate but the speed of capital accumulation, the concentration of it in property and infrastructure, the reliance of capital expenditure on debt financing and that we know even now that the status quo can't carry on without leading to major economic disturbances."

The specter hanging over the Chinese economy is whether it risks suffering the same fate as Japan, which has experienced near-zero growth over the past two decades after a spectacular banking crash in the early 1990s.

Wolf at the Financial Times says, however, there are key differences between China now and Japan then.

"When Japan hit its crisis 20 years ago it had pretty well caught up on the developed world. China has perhaps another 20 to 30 years of fast growth potential," he says.

"On the other hand, however, I would argue that China is a more investment intensive economy and probably more unbalanced than Japan ever was. I would say that once it has made the necessary reforms to be a more consumption and private sector-led economy - which will probably be a painful adjustment - China's GDP per capita could perhaps double or even triple from where it is now."

Louis Kuijs, chief economist of Greater China Markets, Royal Bank of Scotland, who is based in Hong Kong, is one who does not believe that China is heading for a macroeconomic crisis and questions whether some of the investment in infrastructure is as inefficient as has been suggested.

"If you take a train in China you don't feel as though the railways are a waste of money. They are fairly well-run systems and people are using them massively. I am a little bit more sanguine than others about the way investment has been allocated over the past 15 years."

Kuijs says that unlike some other economies, China's has a greater capacity to take on debt because of the high level of savings, which means that the high levels of investment can be financed domestically without seeking external help.

"I would caution against this view that it cannot be sustained because all the growth has been financed domestically and there has been no reliance on foreign money.

"If you have a system where you can keep your consumption to GDP ratio low without having a social crisis, just from the hard-nosed financial economic perspective you have an enormous amount of leeway about what you do."

Marie Owens Thomsen, senior economist and strategist at Credit Agricole Suisse Private Banking, based in Zurich, says she is "mystified" by the debate on China needing to reduce investment.

"I took a break from the investment markets. Before I went away, everyone was saying that Chinese growth depended on exports. When I came back the worry was about investment. From my point of view we get this whole phenomenon where the markets tend to focus on the wrong thing.

"The two main drivers of Chinese growth are now investment and private consumption. Now why would you want to reduce investment if it was one of the main contributors to growth?"

She, too, is not concerned by China's growing debt to GDP ratio.

"I don't need to be flippant but China has the money to bail everybody out should they need to with their massive foreign exchange rate reserves. It might be better for everyone if they had less debt but I can't see they would have any problem paying it back."

Goolam Ballin, chief economist and head of research for the Standard Bank Group, in Johannesburg, is concerned about China's growing debt causing a slowdown and its effect on commodity-producing nations in Africa

"If China's growth was to slow to 5 percent and not anything like 2 percent or going into recession, it would be tantamount to spawning a commodities recession that would impact emerging markets, particularly Africa, in a pretty pronounced way."

He believes the economy has already made moves to reform and does not anticipate a sudden collapse in growth.

"I don't think there will be a structural collapse. There may be cyclical bouts of weakness from time to time. The economy is moving into services and gradually up the value chain and I think it will be able to maintain a 6 or 7 percent GDP growth rate over the next decade while doing that."

Gary Liu, deputy director Lujiazui International Finance Research Center at the China Europe International Business School in Shanghai, says it is difficult to predict what shelf life China's current economic model has.

"The Chinese leaders have clearly recognized that the current model is flawed and that we need to change. The problem for the policymakers is that they have to strike a balance between not reducing the level of investment too sharply while allowing time for other driving factors such as consumption, innovation and urbanization to kick in."

He says one of the problems in any reform process is reining in local governments, which are responsible for the majority of the country's debt.

"If you wanted to part privatize local authority-run SOEs, for example, you would have to make sure that they reduced their debts with the proceeds and build a pensions and social welfare system. What you don't want is for them to go out and start building expressways again."

Wolf at the Financial Times believes the Chinese economic model will have to fundamentally change with the only question being over the period of the adjustment.

"The question is whether it is done in a quick short sharp way which would involve much lower growth than is currently envisaged or whether the government decided to cushion the process when it would be more drawn out.

"It is a value question I really can't answer but my sense is the Chinese government would be very keen on stability and unhappy with major economic turbulence."