Expect China turbulence or continue your flight of fancy

Hard or soft landing? It seems as if everyone has an opinion on how China's leaders can successfully slow its economy.

Equally important is what this means for the flagging H shares, with the index of mainland companies listed in Hong Kong down 21 per cent this year.

The image of a plane crashing might seem a far-fetched metaphor, yet it could be uncannily literal as one of the biggest risks to China's economy is simply running out of fuel. Never mind deliberating over a banking crisis or liquidity crunch, if China's factories face electricity blackouts, growth would be switched off. Few could complain there was no prior warning of a coming end to the spectacular growth journey.

Federal Reserve chairman Alan Greenspan even took time out during his recent testimony to echo an IMF warning about the dangerous trajectory of China's growth path. Premier Wen Jiabao says the economy is at a 'critical juncture'.

If a first-quarter GDP growth rate of 9.7 per cent did not set off any alarm bells, the accompanying 43 per cent jump in fixed-asset investment to 879 billion yuan appears to be incontrovertible evidence of an investment bubble.

Where consensus breaks down is whether an equity market bubble exists, too.

According to JP Morgan it has already burst, noting the H-share declines. Poor corporate governance, declining margins and weaker earning prospects are among the reasons. Despite this, the investment bank still expects Mr Wen to engineer a soft landing. New capacity in certain commodity industries will help to bring down prices, further deterring investment.