Not for the first time in recent memory, China's economy is the envy of the world. While most big economies are either still mired in recession or showing modest recoveries, China is firing ahead.

Few now doubt that the government will achieve its target for the year of 8 per cent growth in gross domestic product – even if many think there are still big questions about the accuracy of Chinese GDP numbers.

The startling rebound is the result of a successful stimulus plan. China made headlines last year with a plan to spend Rmb4,000bn ($600bn) over two years on investment.

However, the bulk of the stimulus has come from the government's order to state-owned banks to push through a massive surge in loans. Bank lending in renminbi has increased by 164 per cent in the first eight months of the year.

The latest round of figures, for August, suggest the recovery is gathering pace, with industrial output increasing 12.3 per cent over the same month last year and fixed asset investment expanding by 33 per cent.

Yet for all the optimism, there are big questions about whether the recovery can be sustained. Some analysts believe China will struggle to return to the 9-10 per cent growth it has seen in the past two decades.

The immediate threat would be a sharp withdrawal of the government stimulus. It is unlikely that the government would continue to let credit grow at such a fast pace.

However, recent statements from Chinese leaders have made it plain they see no reason for an early retreat.

In its latest quarterly report, the central bank said the economy was “now in a critical period of stabilisation and recovery ... the foundation of the recovery is not yet stable”.

Wen Jiabao, premier, has continued to adopt a cautious tone, warning against “blind optimism”.

Some observers are beginning to worry about inflation, which they fear could require a sharp tightening of policy next year.

The rapid growth in the money supply and the surge in share prices and in some property markets has raised concerns that the huge injection of liquidity has created a series of bubbles.

However, the stockmarket is still well below its peak in late 2007.

Others suggest that China could face the opposite problem – a prolonged bout of deflation. The stimulus plan has largely involved public investment in infrastructure projects.

However, the risk is that the spending will exacerbate over-capacity in industries such as steel, cement, aluminium and chemicals.

One of the big risks of over-capacity is that it could leak into exports, which would weaken growth elsewhere and exacerbate trade tensions.

However, so far, it appears that Chinese trade is rebalancing to a more sustainable position.

Exports and imports are both down sharply this year, but exports have fallen further. As a result, economists are predicting that the current account surplus, which was near 10 per cent of GDP last year, will this year be closer to 5 per cent.

In the medium term, many economists argue that China will only return to near double-digit growth if it finds new engines to replace much weaker performance from exports.

Stephen Roach, chairman of Morgan Stanley Asia, says: “The current trend is not sustainable and, although the Chinese economy will probably expand in the third and fourth quarters, the real test will be next year when it becomes clear that external demand, led by the US consumer, is in big trouble.”