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Forget Greece, China Biggest Risk to Global Economy: Faber

Forget Greece, which is an "insignificant" economy, it is China that poses the biggest risk to the global economy, Marc Faber the editor and publisher of the Gloom, Boom and Doom report told CNBC on Friday.

Dr. Marc Faber
Axel Griesch | ASFM | Getty Images
Dr. Marc Faber

"I think the biggest risk is actually China because if you look at Greece, it's an insignificant economy," Faber said on CNBC Asia's “Capital Connection.” "Yes, they owe money, but the market knows that it's bankrupt."

The European Central Bankwill be able to support Greece and European taxpayers would pay for it, he added. On the other hand, a slowdown in China, the world's second-largest economy, would have a huge impact on prices of industrial commodities, Faber said.

"In turn, this has a huge impact on the economies of countries like Brazil, the Middle East, Central Asia, Africa, and Australasia, so these countries could slow down meaningfully," he said.

Faber, who correctly predicted the 1987 stock market crash and more recently forecast the stock market correction in Augustlast year, said China's economy depends largely on capital spending, which tends to be volatile and has a strong multiplier effect on the economy.

A slowdown in China could have a painful impact on global gross domestic product growth as the nation is now the single largest contributor to global economic growth, the International Monetary Fund said earlier this year. The nation's contribution to global economic growth over 2010-13 is expected to be 31 percent, up from just 8 percent in the 1980s, the IMF said.

Faber, whose investment portfolio is concentrated in Asia, said late last year that some sectors in the Chinese economy were already in a recession . However, data so far this year have indicated that China's economy is slowing, but not crashing. China posted its weakest growth in nearly three years in the first quarter, with GDP expanding 8.1 percent.

Some experts point to other data points, however, such as electricity output and rail freight for signs that China's economic slowdown is much more severe than the GDP numbers.

Faber said that while global economic concerns were weighing on markets, stock indices will find it "very difficult" to repeat highs set in April. But, he added, he expects a short-term rebound of maybe 5 percent.

"I would cover my shorts in the next 10 days, because I think the market is very close to approaching an intermediate low from which we will rebound," he said.

—By CNBC’s Jean Chua.

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