Chinese businessman Yang Guo waves a large wad of cash in the crisp evening air outside a state bank in the northern city of Jinan. He snorts in disbelief when it is suggested his money may not be too safe there.

"Of course I put my money in this bank. It's reliable. It's a government bank, isn't it?" said Mr Yang, a man in his forties.

He, at least, does not expect a financial crisis in China, but some economists who study its banking system beg to differ.

They say hundreds of millions of people like Yang place their hard-earned savings in China's banks, oblivious to a debate over the financial health of these institutions.

"We think that the Chinese banking system is technically insolvent," said Chew Ping, a sovereign analyst with international ratings agency Standard & Poor's.

"China has a huge financial system vulnerability." Writes Morgan Stanley economist Andy Xie: "There is no prospect to grow out of China's financial sector problem. The change will come only with a financial crisis."

However, Mr Chew and other economists always come back to a central issue: a crisis is unlikely while confidence persists.

The history of Chinese banking is littered with crises. There was a collapse in the 1940s as the Nationalists fled the victorious Communists. Isolated runs took place in the 1990s. In the 1980s, panicked depositors withdrew cash out of fear prices of daily goods would soar as price controls were relaxed.

"That was one of the reasons behind discontent and the 1989 Tiananmen incident," said Beijing University professor Niu Dayong, referring to pro-democracy protests in which hundreds, if not thousands, were killed in a violent crackdown in Beijing's central Tiananmen Square.

To combat widespread panic across China, the central bank abruptly hiked interest rates, and went so far as to award an additional interest rate payment to compensate for inflation.

Experts say the banking system has improved markedly since 1989, partly through tightened supervision. The government is setting up a separate watchdog, called the Banking Regulatory Commission, to help clean up balance sheets.

It has set up separate companies to take over and manage bad debt. It keeps an iron grip on interest rates, and orders banks to maintain six per cent of deposits with the central bank. Banks have been banned from investing in stocks since the mid-1990s.

A central bank spokesman expressed disbelief at analysts' concerns. The bank puts bad loans at 25 per cent of total loans and the Shanghai-based official said it was heading down.

The problem is a system weighed down by loans made to failing state firms that have left bad debts as high as half of total lending at some banks.

The system is kept afloat by the willingness of Mr Yang and hundreds of millions like him to park their money in state banks.

"Although the banking sector has huge problems, the public has huge confidence," said Jun Ma, a senior economist with Deutsche Bank. "There won't be a confidence crisis. Even if it takes place on a small scale, it would be put out very quickly."

Confidence persists because China, the world's sixth-largest economy, has kept up a staggering pace of growth that protects it from growing pains as it plugs into the global economy.

With a savings pool of about $1.2 trillion, the country's banks seem flush with cash.

"I never thought whether banks' bad debt could ever become a problem," said a puzzled Terry Wu, a property agent in his 20s.

"I'm not worried about my money being safe. The country is stable, and my bank is owned by the government," said Mr Wu, who banks with Agricultural Bank of China, one of the four largest.

Despite the faith of bank customers in a government bail-out, if required, China does not guarantee bank deposits.

As the country frees up its market after joining the World Trade Organisation - opening the door to foreign banks - there are several doomsday scenarios.

Economists say bad debt mountains could paralyse banks or the government could be overwhelmed by swelling welfare demands.

Triggers for a systemic breakdown could be a run on banks by frightened savers, an over-rapid freeing up of China's foreign exchange controls or a stock market crash.

"Nearly every nightmare scenario begins with a banking crisis," Goldman Sachs wrote in a report this month. "In the worst case, China could emerge with little or no real growth, a spiralling fiscal burden and crushing structural pressures."

However, the crisis threat might help speed the rebuilding of the economy as bloated state firms slash jobs and throw out obsolete equipment - leaving room for new firms to grow.

"Whether it's financial risk or fiscal risk or social risk, how serious those risks become all depend on how well the economy will perform," said Joan Zheng, a senior JP Morgan analyst.

"For that reason, the Chinese government would try to do everything... to make sure economic growth does not falter."

Asia's experience in 1997/98 highlighted what bad debt could do to an economy. Thailand's debt load was the catalyst that sparked a cascading financial crisis across much of Asia.

Historically, such crises are common in emerging economies. Many developed nations faced their own systemic failures as part of the road to maturity, not least Japan and the United States.

Economists say China has the fiscal might to tide it over any potential crisis. The government collected tax revenue of 1.7 trillion yuan ($205 billion) in 2002, up 12.1 per cent, state newspapers have reported.

The banking debate has recently entered the public domain, a sure sign in China of the perceived seriousness of the problem. In a January edition of the official Beijing Review, renowned economists discussed whether banks were on the verge of collapse.

"Many problems exist in China's financial system," Fan Gang, the head of a private think tank, wrote in the review. "Given this, reforms should be accelerated so as to prevent the emergence of a possible financial crisis."

But in the end, a lot rides on the continued confidence of the Yangs and Wus of China.

"I can tell you, this problem would never occur to most people. I myself have faith in my government," Mr Wu said.