Anyone who stands in the middle of Guangzhou's high-rise district and looks up is liable to suffer dizziness.

The 600m Canton Tower, China's tallest structure, sits across the Pearl River from several other newly-constructed giants, including the 103-storey International Finance Centre. The sensation is akin to strolling through a forest of enormous metal trees.

If the Chinese economy - represented by these vertiginous monuments - does fall to earth, one cannot help thinking that it would create a very large bang indeed; one that would be felt in every corner of the earth.

And fears have been spreading in recent months that China might be heading for precisely such a scenario. Economic indicators have been flashing red in recent months. There has been a sharp drop in residential property prices and a succession of disappointing car and retail sales figures.


But the most alarming news came at the weekend with the revelation by the customs department that China experienced a dramatic fall in exports in February. Much of this was attributable to the Chinese New Year holiday, when factories traditionally shut down.

But concerns have also grown that China - the world's workshop - is beginning to suffer from falling demand from Europe and America. China's gigantic export sector is simultaneously the source of China's strength and also its great weakness. Even the most prosperous of shops cannot remain in business if its customers decide to stop buying.

The country's leadership is certainly preparing for a slowdown. At the annual meeting of the National People's Congress in Beijing last week, the Chinese premier, Wen Jiabao, lowered this year's growth target from 8 per cent to 7.5 per cent.

So the question is, will the Chinese economic landing will be hard or soft?

The soft argument is more popular. China rode out the 2008 global financial crisis with a colossal state spending and lending programme, equal to 15 per cent of GDP. If necessary, it can repeat the trick, say analysts.

"In China, the fundamentals are good, confidence is likely to prove resilient and the policy cupboard is still pretty full," says Gerard Lyons, of Standard Chartered Bank.

Stephen Roach, a former chairman of Morgan Stanley Asia, agrees. He argues that because inflation has been falling in recent months, the Chinese central bank has plenty of room to cut interest rates to stimulate the economy. Others argue that even if the property market correction were to turn into a rout, which wiped out the country's over-extended local banks, Beijing would be able to spend some of its vast currency reserves to stabilise the situation.

Yet the Communist Party authorities might not be able to manage events in the manner the optimists suggest. In China there is the wild card of social unrest.

There are some tens of thousands of riots every year in the countryside, prompted by the seizures of land by corrupt officials. China's great metropolises, such as Shanghai, Beijing and Guangzhou, are also hubs of discontent. Around 200 million internal migrant workers are treated as second-class citizens. They are denied the same healthcare benefits as local residents. Their children attend sub-standard schools. The 2008 financial crisis cost around 20 million jobs across China.

There is another problem with the optimistic scenario. Investment accounts for a full 45 per cent of China's GDP. And that investment has primarily been in factories, heavy industry and infrastructure geared towards bolstering the country's export capacity. Even if China does manage to avoid a hard landing, it is on an economically unsustainable road.

What the country urgently needs is a rebalancing of its economy away from exports and investments to domestic consumption and the services sector.

The country's giant annual trade surplus - which results in China sending hundreds of billions of dollars of capital every year to wealthy America and Europe - needs to come down. China needs to grow organically, by allowing Chinese workers a greater share of the fruits of their labour. And workers need to be encouraged to spend, rather than save.

This means providing a more comprehensive social safety net so ordinary Chinese feel they do not need to put aside such a high proportion of their income to cope with old age or potential sickness.

The authorities in Beijing do acknowledge these realities. The Communist Party's 12th "five-year plan", unveiled last year, promises reform along these very lines. They have also pledged to allow the Chinese currency, the renminbi, to increase in value against the US dollar, which should facilitate rebalancing.

But it remains to be seen whether they will be able to deliver. The Chinese export lobby is likely to resist any measures that could undermine its profit margins. Some within the regime are already saying the renminbi has appreciated enough.

Who will prevail: technocrats or vested interests? The fortunes of China in the coming months and years do not only depend only on skilful economic management - they also depend on messy politics. And those battles take place behind closed doors.

- Independent