There is considerably less exuberance about these days around the Asian economies, and a lot of this has to do with the regional giant and the world's second largest economy: China. The investment bank UBS downgraded China's gross domestic product growth forecast from 8 per cent to 7.7 per cent for this year and 7.8 per cent for next year.

“Economic activities have been relatively weak as strong credit expansion has so far not generated the expected increase in investment activities,” the analysts wrote.

UBS joins the list of more downbeat assessments, which also includes Goldman Sachs, the World Bank and the International Monetary Fund.

The Beijing government has made encouraging consumption a plank of growth, but a high-profile crackdown on corruption has hit consumer sentiment. And a major influx of cash, both from the banks and from shadow finance, has also got analysts nervous.

State-owned enterprises and local governments alike are leveraging up and, according to data from McKinsey, China’s debt-to-GDP rose to 183 per cent in mid-2012, from 153 per cent in 2008.

With rising corporate and local government leverage, little labour market pressure and the existence of excess capacity in some sectors, the Beijing government seems to be less focused on cyclical growth boosters and more on structural reforms, which would take time implement and bear fruit, UBS said.

UBS economist Wang Tao is careful, however, to show that the slowdown will not be as severe as the one China experienced in the late 1990s, when GDP growth in 1999 dipped to a 7.6 per cent annual low. "There are parallels . . . but also great differences, because excess capacity issues and bad debt problems are less severe than back then, and corporate financial health less strained," she said.

Peter O'Flanagan, head of trading at foreign exchange company Clear Currency, said the manufacturing data from China shocked markets, after the emerging market superpower showed contraction in the sector brought on by diminishing domestic demand and eternal headwinds. These results follow a weaker than expected first quarter GDP result," said O'Flanagan.

“The poor run of data has seen economists pull back their China growth estimates for 2013. There is concern that the rapidly depreciating yen in Japan has resulted in China losing exports to its regional rival. A slowdown in China has global implications given it has been the growth engine that has helped buoy global performance.

“Australia has already eased interest rates as they face a slowdown due to the underperformance of their largest export partner, causing further depreciation of the Australian dollar. The US dollar continues to benefit as global growth wavers, and calls for China to depreciate their currency to increase their competitiveness appear to have fallen on deaf ears.

“Will China be the next to enter the global currency war debate? This remains to be seen but they have the mechanisms to do so.”

The Chinese economy continues to expand by between 7 and 8 per cent a year, which is enough to absorb growing debt levels.

Analysts will now be watching how consumption and debt levels fare in coming months to see if China’s flirtation with higher debt becomes something more worrying.