A tale of two halves

The construction site of a subway station in Beijing. The government should take measures to re-engineer the nation's economy which relies heavily on investment. [Mai Tian/for China Daily]

"It will take considerable skill to do that, but I think the economic management capabilities combined with the relatively healthy balance sheets, public and private, will make it possible," he says.

Spence believes there is already evidence of the China government's credit tightening measures beginning to work without creating the risk of a sudden contraction in growth.

"It appears that China is steadily reining in inflation and intervening to prevent excessive asset price rises in real estate markets. Growth has not been adversely affected," he says.

Some argue that the danger for China is not a hard landing in the sense of a slower growth rate, but the risk of escalating inflation.

The recent rise in the consumer price index (CPI), fueled to a large extent by higher food prices, is a major concern in Beijing as demonstrated by the recent increase in interest rates.

Robert Lawrence Kuhn, a leading commentator on China and the author of How China's Leaders Think: The Inside Story of China's Reform and What This Means for the Future, says rising prices is what concerns the man or woman on the street in China most.

"It is a bigger problem in terms of the reaction of the people because a hard landing takes a while to flow through the economy. It affects corporations first and people only on a delayed basis," he says.

"Inflation, however affects people immediately. Your tomatoes go up in price almost straight away and people don't like it. I think the government would therefore skew towards controlling inflation."

For many people in China a hard landing would be a collapse in real estate prices. Many of the newly affluent middle classes have ploughed their money into buying property in recent years.

Some of the measures the government has taken recently specifically target the residential market, including raising down-payment requirements as well as higher interest rates.

Prices in major cities such as Beijing and Shanghai are often 15 to 20 times average incomes, one of the highest ratios in the world compared to lending criteria in many Western countries which only allow people to borrow three or four times their income.

According to the IMF, property makes up some 12 percent of China's GDP and many fear that if the property bubble were to burst it would produce a very hard landing for the economy as a whole.

"There is a lot of uncertainty as to what is going to happen in this area," says Innes-Ker at the EIU.

"Sales have been relatively weak in the first half. If prices do collapse and I mean by that they fall by 10 to 15 percent and not 30 to 40 percent, it might result in people going out and buying things again. It may therefore be not that bad."

Some commentators believe the level of debt in China, partly amassed as a result of the economic stimulus package, exposes China to the greatest risk of a hard landing.

In a report in June by the National Audit Office, China's leading auditor, it emerged the local government sector, responsible for many of China's major infrastructure projects, had combined debts of 10.7 trillion yuan in 2010, around a quarter of China's GDP.

It was similar levels of investment-fueled debt that led to the Japanese economy experiencing an asset bubble in 1990 and having to endure 20 years of low growth, which is the so-called nightmare scenario that the Chinese are keen to avoid.

Stefan Halper, senior research fellow at Magdalene College, Cambridge and author of The Beijing Consensus about China's new role in the world, says this is a real risk for the economy and could trigger a hard landing.