The property bubble is the least of it. Some economists are arguing the resulting systemic risk will jeopardise the country's growth model.

Economist-gurus Nouriel Roubini and Gary Shilling, predictors of an eventual, property-induced hard landing for the Chinese economy, have been joined by ratings agency Fitch, which this week raised the possibility of systemic spread.

Pointing to a "large and rapid" build-up of leverage since the financial crisis, Charlene Chu, head of China financial institutions, told a Beijing audience the property bubble fuelled by easy, loose lending had also generated credit risk for municipalities reliant on land prices to fund infrastructure projects.

The systemic scenario would go something like this. Solvent banks in the interbank market, cognisant of weaker banks' exposure to property companies' bad debt, refuse to lend to them. Depositors start a run on exposed banks, which spreads to all banks.

That's how it might happen in a market economy, at any rate. But as Diana Choyleva, Hong Kong-based director of economics consultancy Lombard Street Research, the Chinese government is a past master at hiding non-performing loans (NPLs).

"The government assumed strong growth would shrink its problems away," she said. "Having cleaned up bad loans in 1999-2000, it sat on them again, and now it's dealing with a major slowdown.

"Fundamental changes are coming whether they want them or not. Either the government accepts lower growth, or it opts for a stimulus policy and risks accumulating more bad debt."

McKinsey reckons that growth in corporate lending by banks will slow to 13% between 2011 and 2015 after averaging 20% from 2006-09. That might look like good news, but, in fact, NPL ratios will rise for most banks, "even if loan quality during the stimulus-induced boom of 2009 turns out to be the same as in preceding years - a generous assumption".

Even if there were a property bubble, and so far it only exists on the supply side, there's no inevitability that distress will prevail. For optimists - those left - continued faith in the market will depend on government measures working. Liew Mun Leong, chief executive at Singapore's CapitaLand, the region's largest developer, recently told the BBC: "I'd be worried if there were no measures. We won't have a bursting of the bubble. There's a bubble growing, but then there are all these measures."

There's always the possibility of government fudge outlasting pessimism. "The expectation is that everything will work out in the end," says James Hawkey, executive director for retail services in China at CBRE. "The thing is, everything has over the past 20 years. We've called oversupply several times, and we've always been wrong." (Hawkey believes this time they're right.)

A couple of weeks back, Nigel Chalk, the IMF's China mission chief, compared the Chinese government's approach to 'whack-a-mole'. ("Rascally moles would pop their cute little heads out of holes in the ground, and your task was to use a giant rubber mallet to wallop the poor critters back from where they came," he explained in his blog.)

High domestic savings levels with limited retail investment options, inflation, almost non-existent property taxes and an increase in real demand driven by urbanisation are pushing prices up. Instead of mole-whacking, he said, the government needs to raise interest rates, introduce a broad-based tax on housing and develop vehicles for people to invest their savings.

With or without these measures, what does property market and economic uncertainty mean for pension fund investors in China? Some have always been cautious, in any case, even before the financial crisis. Sampension, the DKK116.3bn (€15.6bn) Danish pension scheme manager, avoided China, instead targeting Singapore, Malaysia and Japan.

Michel Meijs, a spokesman for APG, points out that theirs has always been an opportunistic (and indirect) strategy. "The present circumstances do not change that," he says. "We will keep looking for attractive opportunities to invest in real estate."

In any case, as Hawkey points out, international investors make up only a small part of the market. The big players in China's property market have always been domestic developers. They've switched from housing to offices, hotels and retail, hence the danger of oversupply. "Developers want to go into shopping malls, but many are in new areas," he says. "Over the next five years, they'll be many an awkward moment on opening day when a shopping centre opens with no population around it."

It could look bleaker than an empty mall if the impact of NPLs spreads beyond the property sector. The promise of Chinese property, to a large extent, has been predicated on the macro story, yet Lombard Street Research forecasts that GDP growth will halve to 5% at most in the next 10 years. This - the loss of faith in the market and the loss of a seemingly inevitable steep upward growth trajectory - will be where the real damage is done.

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