Bubbling China may crash: Marc Faber

All these years, global economists and analysts have been betting their investment predictions on China saying that the country's economy is on an unparalelled growth as the Chinese are overtaking the US and Europe in production and consumption of several commodities. But it looks the Chinese economy is on a crash course, if Marc Faber is to be believed.

In an interivew to Bloomberg Television in Hong Kong Monday, Faber said. The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.

Following are the key comments from Faber predicting the possible collapse of Chinese economy:

The market is telling you that something is not quite right. The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.

When the credit crisis exploded and American consumers stopped spending, China did the usual thing governments and central banks do, they attempted to stimulate their economy by spending billions on domestic property development and construction projects, which may account for about 60 percent of the Chinese domestic product at this time.

In the interview Faber also said the mining companies in Australia, which supply a large portion of raw materials to China, are acting heavy, meaning they may be feeling exterior pressures of slowing demand.

It also looks like China has no intention of changing their policies either, as Finance Minister Xie Xuren said China will continue their expansion until the recovery takes hold.

One step the Chinese government has taken is to forbid taking out a mortgage on a third home while also raising interest rates on mortgages and increasing the requirements on down payments.

Estimates are that could cause the value of properties to fall by up to 20 percent in the second half of 2010 in hopes of cutting down are investing in risky real estate deals.

Faber says these measures could push investors toward the Chinese stock market, but since that's fully valued at this time, they could choose gold as their investment of choice, and who knows where that would bring the price gold to in light of the European sovereign debt crisis, which is only beginning to unfold.

Either way, if Faber is correct at the high end of his projection, the economy of China will slow, and what happens to the prices of commodities at that time when so many companies and countries have been relying upon to bring them out of the recession?

Couple all of this with the EU sovereign debt debacle and it's hard to figure how the financial press can endlessly repeat the mantra that we're in an economic recovery.