China: 2011's Biggest Question Mark

China just shut down Skype, the free/cheap internet phone calling service, by making it illegal.

While attention grabbing, the Skype move is hardly a surprise as Facebook, Twitter and YouTube are already blocked in China, and Google shut down its Chinese servers last year after government pressure.

Its very hard to see how this type of thinking on the part of China's communist party leadership will serve the country's economic interests over the longer run. China economic historians are well aware of how inward turns have worked out for the middle kingdom in the past. During the Ming dynasty, China largely shut itself off from the rest of the world, and the country's subsequent economic development suffered.

While China's technology blocking moves have more to do with the country's longer-term competitive position, two factors are weighing heavily on China's immediate-term prospects:

1. Trade tension between China and the U.S. has been on the rise, leading to talk of a U.S.-China economic war.
   
2. The Chinese real estate market, which according to legendary Enron short-seller Jim Chanos accounts for 60%+ of China's economy, remains in a frenzied bubble even with recent government moves to reduce lending activity through increased interest rates, reserve requirements, etc.

One of the biggest question marks going into 2011 has to be China and whether the country can manage a soft landing, or if in fact the mother of all bubbles will finally burst. If the latter is the case then there will be significant knock-on ramifications for perhaps nearly every investment sector (particularly commodities) around the globe.