The Chinese economy, we are constantly told, is being threatened by massive overinvestment.
In recent months, dozens of prominent commentators from New York hedge fund manager James Chanos to Harvard University professor and former International Monetary Fund chief economist Kenneth Rogoff have sounded warnings about the danger. They argue that last year's credit-fuelled investment boom has exacerbated China's existing industrial overcapacity and inflated a dangerous bubble in the property market.
On the face of it, they have good reasons for concern. New bank lending surged 32 per cent last year to 9.7 trillion yuan (HK$11.03 trillion), nearly 30 per cent of China's gross domestic product. In response, investment shot up to more than 50 per cent of GDP, contributing eight points of the economy's 8.7 per cent growth rate.
Investment at this pace is unsustainable, the doubters say. Money is being poured into unproductive projects that will never be able to generate a return on the investment. The inevitable result will be a collapse in asset markets, a sharp increase in non-performing loans and a fatally weakened banking system.
But not everyone agrees. Some observers maintain not only that the economy can successfully absorb current levels of investment but that, if anything, the mainland should be investing more, not less.
One is Wang Qing, a China economist at Morgan Stanley. In a research note published last week, he argued that sceptics like Chanos and Rogoff are using the wrong measure when they say China is guilty of overinvestment.
Investment may have expanded rapidly last year, but concluding that there is overinvestment based solely on the pace at which investment is growing makes no more sense than concluding that a person must be overweight since he is eating a lot, Wang argues. On the contrary, he says, 'a hearty appetite ... is a sign of health and vitality'.
Wang maintains that observers should not be looking at the flow of investment - how quickly it is growing - but at the stock.
Seen from this perspective, the picture is very different. Consider the steel industry. Last year China consumed 500 million tonnes of the metal. That's more than five times as much as the United States (see the first chart below): clear evidence, many say, of China's massive overinvestment.
Yet the overall amount of steel in China's economy remains low by international standards. According to Wang, the outstanding stock of steel is only four tonnes per head, just one sixth of the level in the US (see the second chart).
In other words, the mainland could go on consuming steel at the same pace for the next decade and still reach only half the steel intensity of the US economy.
Meanwhile, analysts at HSBC argue that in many sectors China needs more - not less - investment. They point out that the recent investment boom has been concentrated in infrastructure and property, while capital expenditure by manufacturing companies has been relatively soft. Now with industrial production picking up strongly, mainland manufacturers need to step up their investment in new equipment.
Yet although no one doubts that China needs more investment if it is to continue developing, severe doubts remain about the capacity of the economy to absorb investment at such a furious pace and about the efficiency of many current investment projects.
It would be impossible for investment to expand at a 30 per cent annual pace anywhere, let alone in China, where the financial system is relatively underdeveloped and institutional transparency and accountability are rudimentary, without a significant portion of the investment money going to waste.
Even Wang at Morgan Stanley acknowledges the point, conceding that 'while over 85 per cent of financial intermediation is carried out by the banking sector, commercial banks' lending behaviour is not entirely commercially oriented'.
That's putting it mildly. The state-controlled banking sector has always shown a preference for lending to state-owned companies, and since the start of the economic crisis, that preference has become overwhelming. That's troubling, because the return on assets at state companies is woeful - just 0.5 per cent for industrial companies in 2008, compared with 9 per cent for the private sector.
As a result, the debate about overinvestment will continue, and no doubt state-linked companies will continue to build factories for which there is no market, office blocks for which there are no occupants, and shopping malls with few tenants and even fewer customers.