Indiana Grain Company, LLC

Posted: 10/07/11

By: tomgrisafi

Some investors are now starting to worry about a "hard landing" for the high-flying economic giant that is China, CNBC reports Friday morning.

And the fear isn't unjustified in the least.

"I've rarely seen such a quick shift in market sentiment as I am seeing towards China. There was a near-total faith in the ability of the command economy to deal with the challenges," said Deutsche Bank strategist John-Paul Smith, who has been a long-term sceptic on the China investment story.

"But suddenly people are thinking that the government may have lost control over the economy."

A collapse in Chinese growth is at the top of global geopolitical and macroeconomic risks identified by advisory firm Oxford Analytica, which warns that annualised economic expansion there of less than 5 percent would be a massive shock to the global economy.

On top of growth worries, the protracted instability in the euro zone and the threat of global recession have fanned concern that China's drive to choke off credit to an overheated property market could hit its banks, whose deteriorating asset quality has prompted a ratings warning from Fitch.

Already, the cost of insuring Chinese sovereign debt against default has soared to 2-1/2 year highs as investors scramble to hedge exposure to Chinese corporate borrowers while offshore dollar/yuan forwards have jumped on expectations that currency appreciation will stall in the coming months to help the country cope with stuttering export growth.

For more on the economic fears now pinned to China, check out CNBC.com this morning.

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