Forget Europe, Worry About China: Hugh Hendry

Hugh Hendry, the outspoken fund manager who runs Eclectica Asset Management in London, told CNBC he is betting China’s credit bubble is about to burst, causing another global crisis.

China’s 13 trillion yuan ($1.9 trillion) of lending in the last 16 months is leading to industrial capacity growth in the same way as Japan in the 1920s "when ultimately the whole system collapsed," Hendry said. "China could precipitate a much greater crisis elsewhere in the world.”

Hendy said he has identified 20 unnamed international stocks that he is shorting via his $180 million global macro hedge fund.

If he calls it right, he said hopes for returns close to half a billion dollars.

“Some of these businesses will not survive; others will have to be radically restructured and my investors will make money," Hendry said.

Following Europe’s debt crisis it is “now commonly accepted that the magnitude of the financial problems confronting the world economy are so great that in all likelihood we will be confronted by a hyperinflation allowing sovereign debts to be paid off in worthless flat currency," he said.

China is at the mercy of its own credit bubble, Hendry said and he predicts it will explode as it fuels instability within the Chinese economy and political system.

The Shanghai Composite index is now officially in bear-market territory, having fallen by more than 20 percent from its highs and following what Hendry described as a lending boom that is “unprecedented in 400 years of economic history."

He predicts that when it does explode within the next one to three years, it will take everyone else with it.