'Act before reaching tipping point'

The Chinese economic model, according to Pettis, has to change from one where consumption plays a bigger role in the economy and investment a much smaller one. In China at present, consumption makes up only around 35 percent of the economy, compared with 70 percent in the United States and around 65 percent in Europe. China's investment ratio of 50 percent is one of the highest in economic history.

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Pettis says stress points are being reached because investment in infrastructure and other projects no longer produces a sufficient return to cover the cost of borrowing.

As such, investment only serves to increase the country's debt levels. The problem has been made more acute by the 4 trillion yuan ($646 billion) stimulus package the government enacted in the wake of the financial crisis in 2009.

This has led to local government debt alone soaring 70 percent over the past three years to $17.9 trillion yuan, according to China's National Audit Office.

China's official debt-to-GDP ratio is 58 percent of GDP, according to the official figures, although some other estimates put it at 200 percent or even at 240 percent.

Pettis argues, however, that it is not the actual debt ratio statistic that might be crucial.

"We don't really know what the true ratio is but it is certainly very high. The actual figure is not the only thing that matters but also the structure and underlying volatility of the economy.

"If you take the case of Argentina in 2000, its debt-to-GDP ratio was only 50 percent yet at the end of 2000, they devalued the currency and in 2001 they defaulted on their debt."

Pettis is an acknowledged expert on the Chinese economy. His latest book follows on the heels of The Great Rebalancing: Trade, Conflict and the Perilous Road Ahead for the World Economy, which also generated much interest.

A former Wall Street investment banker, he headed Latin American capital markets for Bear Stearns Companies Inc before he came to China in 2002.

"I was teaching at Columbia (University in New York). I used that to get a teaching job in China. I figured that in two years I could learn enough about the country to return to Wall Street. I just like living here, apart from the air. I have stayed 12 years," he says.

Despite speaking five other languages, including Urdu, Spanish and Portuguese, he has failed to master Chinese.

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