Not everyone shares this pessimism. "We're still of the view that China muddles through," said Todd Henry, emerging markets equity portfolio specialist at T.Rowe Price. "They'll post decent growth, but the trajectory of growth will be lower" as credit growth slows.
That's not a ringing endorsement. Henry acknowledged the misallocation of capital and potential problems lurking in the financial system. But he doesn't see systemic risk.
Richard Gao, a portfolio manager at Matthews Asia, wrote in a note, "We believe that a widespread banking crisis seems unlikely for China, but we have nonetheless taken a cautious approach and typically are underweight in Chinese financials, especially banks, in our portfolios."
Michael Kurtz, global head of equity strategy at Nomura, also told CNBC attempts to rein in credit are "very useful in terms of getting the Chinese economy back on a more sustainable footing as we look out over the medium to long term."
It may even be positive for the country's financial institutions down the line.
"We do think that medium to long term as China begins to actually crack down on the abuses of easy money and begins to apply harder budget constraints at the margin, it could underpin a longer-term re-rating of the sector," Kurtz said. "We're finally starting to see the banks acknowledge the true status of the underlying balance sheets."
T. Rowe is underweight China financials. The stocks are not yet cheap enough to make them comfortable with the risks that may be lurking on their balance sheets, Henry said. T. Rowe prefers the consumer, Internet and environmental themes in China.
BIll Stone of PNC Asset Management also told CNBC that things didn't seem to be falling apart in China and that the recent volatility may be creating future opportunities. "There will be an opportunity in mobile," he said, "Mobile e-commerce in China will certainly be worth watching here going forward."
Is It 2007 or 1979 in China?
Garry Evans, global Head of equity strategy at HSBC, draws the comparison between China in 2013 and the U.S. in 1979 when Fed Chairman Paul Volcker became Fed chairman and took to breaking inflation.
The Chinese government is focused on reform, Evans said. "Markets will want to wait and see whether these reforms happen in China."
T. Rowe's Henry said that Chinese officials' attempts to shift the economy from one driven by government investment to domestic consumption will be a "delicate balance."
"The risk is they don't get this right and it becomes mismanaged," Henry said. "Our view, they've done a good job in terms of managing the economy.
Smead takes a dimmer view, saying China in 2013 is more like the U.S. in 2007-08 when the global financial crisis hit. While he runs a long-only U.S. fund, China is his chief worry and that has him avoiding U.S. energy, resource and industrial companies that depend on China growth.
"It's probably late 2007-08 in China," Smead said. "It's a physical impossibility for economy to be growing as it is" unless credit continues to expand sharply.
He predicts a deep recession or depression that could last four years as it deals with the fallout from the credit binge.
Either way, HSBC's Evans said, "You have to expect Chinese equities to be quite volatile and quite weak."
—By CNBC's Justin Menza. Follow him on Twitter