As China's Economy Slows, a Look at What Could Happen

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The problem is that China's debt burden is so much larger than ever before -- both in absolute terms and compared with the economy.

At the same time, recent efforts to support growth by increasing state spending have met with another challenge: The government is getting less bang for its buck.

What's more, private companies, put off by the lackluster economic outlook, have been pulling back on investment. State spending has helped keep growth rates on target so far this year, and a rebound in real estate investment has also helped, albeit at the risk of inflating a housing bubble.

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"Just having a lot of debt, and bad debt, does not cause you to have a crisis," said Arthur R. Kroeber, the managing director of Gavekal Dragonomics, an economic research firm in Beijing.

"But the price that you pay -- if you don't do the financial restructuring and real economy restructuring that is necessary to restore things to health -- is that you get a very long period of very low growth and anemic activity," he added.