As we watch for the next shoe to drop in the form of a serious, national financial crisis while our leaders flee Europe’s great global warming freeze — ah, how nature mocks us — eyes spin from Greece to the entire basket of the subprime nations of Europe.

But perhaps we are missing the one great fall that may be at hand — China.

Last Friday the Chinese stock and property markets took a terrible hammering and as the week begins, they face floors that, if fathomed, will endanger the entire miracle and the last bastion of capitalism. Communist China.

The European economic crisis might best be explained as a re-run of subprime. That is, wealthy nations and their banks saw fit to indulge poor ones with disastrous results. It was but a pie, and all sought to take a cut — the percentage they took from each loan. When the loan was over and the pie began to disappear it was discovered the pie had been sliced and diced until there was no substance left but bad debt.

Meanwhile, Europe engaged in its own sub-prime horror show, swamping nations that had not seen serious money for 100 years in prosperity flowing from the centre to the outer: the Baltic States, the eastern, the southern nations, Ireland and Iceland.

Overnight, the New York Times reported: “worries about Greece have helped to renew fears of contagion in other parts of Europe where foreign exchange reserves are scarce and debts are high.

“The comfortable belief that the world weathered the storms of 2008 and is now recovering could be challenged by a new wave of defaults.

“At a minimum, we are being reminded that an incredible amount of capital was simply wasted during the late boom, whether in American commercial real estate or Middle Eastern skyscrapers, and a lot of those losses have yet to be realised. Dubai may yet replace Iceland as the record holder for capital destruction, measured on a per capita basis. Unfortunately, Greece, like a number of other countries, has proved to be much better at announcing economic reforms than at putting them into effect.”

Meanwhile, other eyes are turning their attention with great reluctance to the big bird China.

The Shanghai Composite this year has gone gang-busters — up 71%, while the real estate bubble is running at 91%. Many consider this healthy state of affairs will continue to carry the world through any more dark days that might lie ahead.

Mind-boggling though that might seem.

But where else lies salvation? The less said of the US economy the better. Real estate and unemployment and debt continue to be the killers. Europe is the … er, sick man of Europe and our eggs are weighted in a China basket heavily pumping up the building of some 70-odd cities. Yes, 70. Cities!

The Daily Reckoning’s Joel Bowman, entertaining Black Swans in Taipei, Taiwan … says: “When Dubai’s debt bubble burst a few weeks ago, few expected that it would precipitate, by itself, a complete collapse of the global economy. Even those who foresaw the mounting and crippling debt loads there weren’t that imaginative.

“Likewise, when Greece, laboring under a deficit not dissimilar to that in the United States, fell prey to the ratings agencies’ wrath, few investors conjured up apocalyptic scenarios of mile-long soup lines around the world. The government there had a “poor history” of debt management, the agencies observed. What did we expect?

“These two debt-addled sovereigns are far from out of the woods, of course. Abu Dhabi might have thrown its meretricious cousin a $10 billion lifeline, for instance, but the emirate’s leader must still find a way to meet up to $80 billion in additional debts and liabilities. With soaring interest rates on bonds issued by the emirate and shattered investor confidence, that won’t be easy. The Greeks face similar problems, and already their fate weighs heavily on both the Eurozone and its currency.”

But in any high-stakes game, it is always the weakest hands that fold first. That is to be expected except, of course, if the guy sitting opposite is US Fed Chairman Ben Bernanke who, in the greatest game poker ever played folded when holding a royal flush against the “bankstas” who had not an ace between them. But that’s what happens when the boys hit town and find an academic who didn’t know the game was liar’s poker.

The same casual indifference that has met the crisis in the gulf and in Club Med — plus places beyond — cannot even be conceived considering the possibility of a China bust-up.

But investors such as Jim Chanos, founder of Kynilos Associates, are talking “Dubai times a thousand” to describe the Middle Kingdom’s economy. The possibility we may see a spectacular collapse there is worth, at the very least, a moment of contemplation.

The China bears might be dismissed but hedge fund investor and billionaire Jim Chanos has a track record that dates back to calling Enron for what it was. He is, in essence, a short-seller who scours the globe looking for companies or countries with intrinsic flaws that others cannot see.

Now, Chanos says, he has found another “trust me” story: China. And he is moving to short the entire nation’s economy. Washington policymakers would do well to understand his argument, because if he’s right, the consequences will be felt here.

Bowman argues that while China appears to be nursing along the world’s nascent recovery with forecasts of GDP growth about 10-10.5% for 2010, according to Nomura Holdings Inc, persistently low interest rates in the US, coupled with the perception that Asian economic growth is a one-way bet, is driving a “tsunami” of capital into the region.

Data compiled by the Japan-based financial group show a half-trillion dollar reversal in foreign cash flows over the past year alone as investors pile their bets on a China-led economic resurgence. In the three quarters leading up to March of 2009, widespread economic meltdowns in the West saw some $262 billion vacuumed out of Asia’s red hot “tiger” economies as beleaguered funds in The City, Wall Street and elsewhere repatriated capital to meet crushing margin calls closer to home. However, over the past six months, almost all of that cash ($241 billion) has found its way back to Asian shores.

Is it about to exit stage right?

Bowman points out that the China bubble extends across the region and “even in a region as populous as this one, that kind of cash does not stay inconspicuous for long. Coupled with ample stimulus spending by local governments, those funds have helped inflate prices from equities through to the local property markets.

“The MSCI Asia-Pacific index (which excludes Japan) is up 62% for the year, en route to its best 12-month performance in over a decade and a half … indeed, some fissures are already starting to appear. The same Shanghai index that boasts such impressive year to date numbers slid over 4% last week, and several components of the China Stocks and ADRs Index have slipped by 10% over the same period.”

The China Daily reports: “If there is anything more spectacular than the amazing V-shaped recovery of the Chinese economy this year, it must be the jump in its housing prices which, after dipping for a while, are breaking records in many cities.”

Statistics cited by the paper indicate prices in those 70 cities are rising at an incredible pace, outstripping even their parabolic climb in 2008, before the last “dip”.

On Friday, Zhang Xin, chief executive officer of property developer SOHO China Ltd, warned that prices in the red-hot real estate market may already be overheated.

“The government needs to realise how serious the asset bubble is,” Zhang told newswire, Reuters. “It cannot control the asset bubble by just saying a few words. The most fundamental solution is to tighten credit.

“There is a bubble in every city,” Zhang added.

That’s the problem with central governments’ stimulus spending, of course: one never knows when enough is enough.

Forbes reports: “More than 1.6 trillion yuan, or about one-sixth of China’s new loans, went to the property sector in the first 11 months, including mortgage loans to home buyers and lending to developers.”

China may implode and it may grow at the ordained rate. But, be it the US, the UK, Europe new and old or China and the massive unresolved debt that dangles above, it is hard to believe we are out of the woods yet.