Chenggong is a new town near Kunming, one of the main cities in the south-west of China. Construction started in 2003 and the results are now apparent in 13 immaculate local government buildings, each clad in marble tiles. A high school boasts an impressive indoor swimming pool and two of the region’s main universities have built large campuses. Pristine high-rise apartment blocks stand in rows, their new windows glinting in the subtropical sun.

The one drawback: at the moment, Chenggong is almost completely empty. Its wide streets are all but bereft of traffic, a bank branch has no customers, and leaves collect in the foyers of the municipal offices.

It is places such as Chenggong that are starting to divide opinion about what is really happening in the Chinese economy. China was the big winner from the global crisis, with its economy expanding by 8.7 per cent last year amid recession elsewhere. But as the country returns from its lunar new year holiday, divisions are emerging over the long-term impact of the stimulus package implemented by Beijing to carry it through the international downturn.

While some regard China as having made forward-looking investments in infrastructure and urban planning that will lay the foundations for a new burst of growth, others fear last year’s recovery is really a mirage based on an investment bubble. It is also a crucial question for the fragile global economy. If China’s rebound were to fizzle, it could easily drag the rest of the world into a double-dip recession.

Within the government, there is sharp debate about the risks from last year’s credit binge, which saw the number of new loans double. Some officials want to keep the investment taps open because they fear the economy is still weak, while others worry about looming threats of inflation and overcapacity.

Among professional investors, views are even more polarised. Anthony Bolton, the prominent British investor, recently announced he was moving to Hong Kong to manage a China fund and purred about “the effectiveness of the centrally run economy”. Yet Jim Chanos, the hedge fund manager best known for seeing the fiction in Enron’s accounts, says the very same centrally planned system has created “an unprecedented bubble” in investment, especially in real estate. Both sides can find ammunition for their arguments in Chenggong.

Three sets of worries are in evidence. The first is that investment is now carrying too big a load in the Chinese economy. According to Yu Yongding, an economist at the Chinese Academy of Social Sciences, investment that was once around 25 per cent of gross domestic product is heading towards 50 per cent. “The rapid increase in the investment rate is creating serious problems. It is already too high and it is still increasing significantly,” he says. “All of this means that in the future, China’s overcapacity problem is likely to become much more serious.”

Historical comparisons suggest there is something unprecedented in China’s investment boom. Even before last year’s surge, the Economist Intelligence Unit notes, China’s investment-to-GDP ratio was the same as Thailand’s on the eve of the 1997-98 Asian financial crisis, or Japan’s at its peak during its high investment phase in the 1960s.

Prof Yu says the system encourages local governments to invest in trophy projects, such as gleaming new towns and administrative centres, because officials sometimes do not care if the project is barely used in five years’ time as they will by then have moved to a different job. “There are big institutional reasons for overcapacity. Local governments have a strong motivation to create this investment,” he says.