Fears of a China Hard Landing Make a Comeback

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The biggest threat of last year - a hard landing in China - seems to have resurfaced with several banks highlighting the dangers that could still derail the world's second largest economy.

Skyrocketing property prices, mounting credit and a slowdown in gross domestic product growth to levels not seen in over a decade have China bears warning of an impending crisis.

According to the latest monthly survey conducted by Bank of America Merrill Lynch the number of fund managers overweight on emerging equities reduced from 43 percent to 34 percent in March largely due to the return of hard landing fears in China.

The number of investors worried about a China hard landing ticked up from 10 percent to 18 percent this month according to the report.

The Bank of America Merrill Lynch survey echoes a similar report from Nomura published this month, which said the Chinese economy is exhibiting the same worrying symptoms that triggered the 2008 financial crisis.

Nomura sounded a warning on China's rapid build-up of leverage, a decline in potential growth and elevated property prices. Furthermore, JPMorgan downgraded its Chinese equities weighting from neutral to underweight this week on concerns over slowing growth and accelerating inflation.

(Read More: China Showing Symptoms of Financial Crisis: Report)

The bearish tone is a reminder of last year's mood of skepticism over China, as investors fretted over the country's slowing growth. Growth slowed to 7.8 percent in 2012, down from 9.2 percent in 2011 and 10.4 percent in 2010.

However, these fears seemed to fade away after growth picked up to 7.9 percent in the final quarter of 2012 and a new set of leaders was announced. A surge in Chinese equities demonstrated the more positive mood with the Shanghai Composite rallying around 17 percent in December.

(Read More: China's Colossal Credit Bubble Next Big Risk: Faber)

Aside from concerns voiced by three global investment banks, there are other market participants showing concern over the region.

"The biggest headwind this year is China. We think it will suffer a hard landing over the next year," said Andrew Su, CEO of Sydney based currency and trading firm Global Compass Markets.

"Last year, we believe there was a high possibility that the numbers were manipulated to aid the power transition [in November] and recent research indicates that their export numbers are not reflective of reality. We have also seen a lot of anecdotal evidence to support this view," added Su.

Chinese exports for February surged 21.8 percent year on year, compared to expectations of a 10.1 percent rise, raising doubts about the reliability of the data. Analysts pointed out that the data were inconsistent with exports out of neighboring countries and could possibly have been artificially supported by traders overstating their exports and understating their imports.

(Read More: Three Reasons to Doubt China's Export Numbers)

Fears Exaggerated?

However, other analysts dismissed fears of a hard landing as exaggerated.

"Those analysts who say China will experience a hard landing this year need to give us a definition as to what a hard landing means for a country as large as China," Li-Gang Liu, chief economist at ANZ Research told CNBC.

"Does it mean a 3 percent growth with a 10 percent inflation? Or does it mean a 7 to 8 percent growth with a 3 to 4 percent inflation? If it is the latter, those guys should stop blowing smokes to scare small investors," he added.