Citigroup has stuck its neck out, forecasting that China is leading the global economy into a recession next year, but the bank believes Australia will avoid the fate.
Its chief economist, Willem Buiter, says China has all the preconditions that have accompanied recessions throughout the long history of business cycles.
There is rising excess capacity in a growing number of sectors, -excessive leverage in the private sector and episodes of "irrational exuberance" in asset markets, leading to booms and busts in both residential real estate and equities. 
"This is the classical recipe for a recession in capitalist market economies. This time is unlikely to be different for China," Buiter says.
Although he says there are -policy options to avoid it - he urges "helicopter drops" of money to consumers - they are unlikely to be adopted.
"Should China enter a recession - and with Russia and Brazil already in recession - we believe that many other emerging-market economies, already weakened, will follow, driven in part by the effects of China's downturn on the demand for their exports and, for the commodity exporters, on commodity prices.
"We also consider it likely that, should the emerging market economies enter recession territory, the advanced economies or developed markets will not have enough resilience, either spontaneous or policy-driven, to prevent a global slowdown and recession, even though many large developed markets will not experience recessions themselves but will merely grow more slowly." Buiter is one of the world's most renowned economists, having shifted between academic, advisory and market roles. He has been an external member of the Bank of England's monetary policy committee, chief economist of the -European Bank for Reconstruction and Development and was adviser to Goldman Sachs before being recruited to Citigroup five years ago.
His is the most influential voice among the growing number saying Chinese authorities will be -unable to keep to their growth -targets. There are still many authorities on China who disagree, -arguing this view exaggerates the importance of the country's under-performing heavy industry and its financial vulnerability.
Nicholas Lardy, at the Washington think tank the Petersen -Institute for International Economics, says services, not heavy industry, have been driving China's growth for the past three years and this will continue, with incomes reaching a level where more is spent on entertainment, travel and other services than on goods. The observation that electricity production is falling, often cited as an independent check on the official growth figures, is no longer a relevant proxy, he says.
Wage growth is running at 10 per cent and the creation of non-agricultural jobs is the best it has been for years. "There is little -evidence that China's economy is slowing significantly from the 7 per cent pace reported by the -government for the first part of the year," he says.
Lardy says China could keep on growing at roughly 8 per cent for another five or 10 years.
Finance professor at Peking University, Michael Pettis, who has been arguing for years that China's rapid growth is unsustainable (though he does not predict recession), says Lardy underestimates the destabilising influence of debt. "History suggests that -developing countries that have -experienced growth 'miracles' tend to develop risky financial systems and unstable national balance sheets. The longer the miracle, the greater the tendency. That's because in periods of rapid growth, riskier institutions do well. Soon balance sheets across the economy incorporate similar types of risk," he says.
He argues that debt amplifies volatility in the economy. Also, when debt levels are high and growth slows, it causes uncertainty about how debt servicing will be resolved and this makes lenders more cautious, which reduces growth further. He says there will not be a financial crisis - the state will underwrite the banks - but rather a prolonged Japanese-style slowdown.
Buiter doubts the recession will be deep and says it should pass by 2018. With good policy response, China should still be able to emerge with a sustainable 3 to 4 per cent growth for an extended period. But the interim will be hard. He comments that economists rarely call turning points. "Economists rarely call recessions, downturn, recoveries or periods of boom unless they are staring them in the face. We believe this may be one of these times." Australia's trade with China represents 8.6 per cent of GDP, and, as a commodity exporter, is obviously highly exposed.
However, Citigroup's Australian economists Paul Brennan and Josh Williamson, believe Australia will be able to keep growth going. They cite modelling by Oxford Economics shows a 1 per cent fall in China's GDP would produce a 0.5 per cent fall in Australia's GDP if monetary policy held steady.
"In our view, these spillovers aren't large enough to create a -recession in Australia, especially if the RBA eases monetary policy as would be expected." Australian officials remain confident that China's authorities have the ability to keep growth going. Last month's minutes, which came after the first round of Chinese market volatility but preceded the second commented that while growth had moderated in the first half of the year, "downside risks stemming from the weak property market and constraints on local government funding for infrastructure investment had receded," attributing the improved outlook to policy intervention.
Deputy governor Philip Lowe commented last week that China's current growth rate of about 7 per cent was adding as much to global output as the 12 per cent achieved five years ago. "In the next couple of years it will be 6 or 7 per cent and that's till a large increase in the of global output," he said, while adding that there were risks.
Treasurer Joe Hockey remains confident in the ability of the -Chinese authorities. In a recent -interview with The Australian, he cited a meeting with China's Commerce Minister Lou Jiwei: "From Lou Jiwei's lips to my ears, 'we have the fiscal tools, we have the monetary tools and we will do whatever we must'."Buiter does not accept this logic, saying the policy response to weakening in demand in China is likely to be too little and too late. "China is not a command economy or a centrally planned economy," he says, describing it instead as "a messy market economy of the state-capitalist/crony capitalist variety". He rejects the argument of Hockey and others that "the authorities would not tolerate growth falling below 7 per cent" saying they do not "have the command and control tools, or the conventional monetary, credit and fiscal tools, to prevent it."