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Beware China's Overheated Economy and Stock Market

The risk of a hard landing in China is growing. It is now clear that Beijing is going to have to intensify its efforts to slow down the economy, because new figures overnight show Chinese growth soaring past forecasts and inflation slowing less than expected.

The Shanghai Composite has lost half it value since late 2008 and technical analysts tell me it's breaking down again.

Today, Shanghai lost another 2.9 percent and dragged Asian bourses down too.

As the debate rages about what all this means, bear in mind that you can play a declining Chinese market through ProShares Ultra Short E-T-F .

Today, watch for follow-through on the sort of knee-jerk reaction we've witnessed overseas. For example, the big mining stocks listed in London are having a rough session.

But hedge fund managers tell me that this feeds into a far bigger picture. For example, take BMW and luxury goods conglomerate Richemont . Both were fantastic plays on China last year.

Investors are now searching for the major themes of 2011. Many investors are anxious to follow Goldman Sachs into believing it will be the "year of the United States."

  • Watch Simon's Video Report on Chinese Stocks Here

But the data isn't quite there yet. So, will China follow through for them again? Well, maybe. Maybe not. Certainly the headlines out of China are making people nervous.

And one of the fresh themes is the liquidation of those longs. Check out how BMW or Richemont have fared year-to-date.

For many people, when it comes to China's prospects for 2011, the jury's increasingly hidden behind behind some pretty thick doors.

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