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China: the world’s next great economic crash

Like Dubai at the beginning of last year, China is now reaching the peak of a bubble.

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Has the global economy recovered? Forecasters say there will be an uptick this year of 2.4 percent, but they’re forgetting something. China could fail soon, and, if it does, the world’s most populous state will drag the rest of us down.

At this moment, a Chinese crisis seems like the last thing we should be worried about. After all, last year China overtook America as the planet’s largest car market and passed Germany as the biggest exporter.

On Thursday, Beijing announced that growth for the fourth quarter of 2009 was 10.7 percent and 8.7 percent for the entire year. Some analysts said the numbers were so strong that the country zoomed past Japan to become the world’s second-largest economy. Stock markets, property prices, you name it: Everything Chinese is soaring.

Dubai was once soaring, too. Global markets therefore, shuddered in November at the news that Dubai World, Dubai’s state investment firm and biggest corporate debtor, had asked for an extension on its $59 billion of obligations. Troubles in the booming emirate had been evident for some time, but stock investors were nonetheless caught unawares, apparently thinking a default would not occur.

They were obviously wrong. Global markets, for the time being, got past the shock, in part because the emirate is small. China, on the other hand, is not. Legendary short-seller James Chanos, who predicted the failures of Enron and Tyco, calls the country “Dubai times 1,000 – or worse.”

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