Billionaire hedge fund investor Jim Chanos, the famous Enron short seller, is in the camp of professionals who view China as headed toward a crash. The China bears suspect that the economy is not as healthy as portrayed, and that many of its components that are actually stronger have become overheated. Basically, they believe that the “entire system is teetering toward collapse.”

Here are three factors that suggest serious problems in China…

1. First, they claim the huge $900 billion spent by the government on economic stimulus to support the $4.3 trillion economy is underperforming.

2. Second, China could be cooking its books. There are notable inconsistencies in official statistics. They highlight that car sales are rising dramatically but gasoline consumption is flat, one of many unexplained economic phenomena.

3. Third, the Chinese potentially face problems with overcapacity. For example, China uses more cement than the rest of the entire world combined, and it increased production by an amount greater than US, India, and Japan’s combined consumption. It’s one example, but the concern is that China will not be able to find a market for many of the goods it is producing in massive amounts.

A collapse of the Chinese economy would send shockwaves worldwide, certainly to include the US. A crippled China could find itself with a destabilized government and would be less able to support purchases of US debt… both are serious concerns.

Is China headed toward collapse?

The conventional wisdom in Washington and in most of the rest of the world is that the roaring Chinese economy is going to pull the global economy out of recession and back into growth. It’s China’s turn, the theory goes, as American consumers — who propelled the last global boom with their borrowing and spending ways — have begun to tighten their belts and increase savings rates.

….read more of China headed toward collapse HERE.

Rocky Vega is a regular contributor to The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.

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