Experts says China will face Economic crisis in 5 years

Global investors are bracing for the end of China's relentless economic growth, with 45% saying they expect a financial crisis there within five years.

An additional 40% anticipate a Chinese crisis after 2016, according to a quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 7% are confident China will indefinitely escape turmoil.

"There is no doubt that China is in the midst of a speculative credit-driven bubble that cannot be sustained," says Stanislav Panis, a currency strategist at TRIM Broker in Bratislava, Slovakia, and a participant in the Bloomberg Global Poll, which was conducted between January 21 and January 24. Panis likens the expected fallout to the aftermath of the US subprime-mortgage meltdown.

On January 20, China's National Bureau of Statistics reported that the economy grew 10.3% in 2010, the fastest pace in three years and up from 9.2% a year earlier. Gross domestic product rose to 39.8 trillion yuan ($6 trillion). Any Chinese financial emergency would reverberate around the world.

The total value of the country's exports and imports last year was $3 trillion, with about 13% of that trade between China and the US. The trade and investment links between the two nations were underlined with Chinese President Hu Jintao's visit last week to the White House for meetings with President Barack Obama.

Investors' concern contrasts with Chinese government statements on the outlook for the economy, which is poised to overtake Japan as the world's second biggest. The Politburo said last month that the nation had a "sound base" for stable and fast growth in 2011 after consolidating its recovery.

About 53% of poll respondents say they believe China is a bubble, while 42% disagree. China's neighbours are the most concerned: 60% of Asia-based respondents identified a bubble in the world's second-largest economy. Worries center on the danger that investment, which surged almost 24% in 2010, may be producing empty apartment blocks and un-needed factories.

Jonathan Sadowsky, chief investment officer at Vaca Creek Asset Management in San Francisco, says he is "exceptionally worried" that the Chinese would eventually face "major dislocations within their banking system".

Chinese authorities also raised interest rates twice in the fourth quarter in a bid to choke off inflation, a sensitive political issue since the 1989 Tiananmen Square protests, which followed uncontrolled price in-creases. Food prices last year rose 7.2%, according to the National Bureau of statistics.

Haroon Shaikh, an investment manager with GAM London, cited "rapid wage inflation" and soaring property prices as the financial markets' chief concern.

Some investors remain unbowed. "China can continue to grow over 10% for the better part of the next five years," said Ardavan Mobasheri, head of AIG Global Economics in New York. Still, the poll found other signs of mounting investor caution toward China, where three decades of market-oriented reform has obliterated a legacy of Maoist impoverishment.

Asked to identify the worst market for investment over the next year, 20% of poll respondents say China versus 11% in the last poll in November. Almost half of those polled, 48%, say a significant slowing of growth was very or fairly likely within the next two years.

Chinese officials have said they intend to wean the economy off its reliance on exports, the source of trade tensions with the US, in favour of greater domestic consumption.

Peter Hurst, a broker with Sterling International Brokers in London, says he's concerned China will struggle to complete the transition. "Yes, there are 1.3 billion people in China," he says. "But are they rich enough to become consumers?"

If China stumbles, the global economy will feel the impact, says Suresh Raghavan, chief investment officer for Raghavan Financial Inc in Houston. "If the PBOC is successful at lowering growth rates to 7%, it will still feel like a recession for a lot of people around the world."

The poll was conducted by Des Moines, Iowa-based Selzer & Co for Bloomberg and has a margin of error of plus or minus 3.1 percentage points.