For the last few years, China has been the driver of global economic growth. The U.S. is stuck in a weak recovery, Japan has fared even worse, and Europe is stuck in a debt and currency crisis no one envies. But there are a lot of outstanding questions about China's ability to maintain a stable economy for the long term.

The Chinese have proven to be master manipulators of their own economy in an effort to maintain growth. A little extra lending here and a sprinkle of stimulus there, and the country's problems are solved quarter to quarter. This summer there was a scare that the economy was slowing, but the government quickly patched the weakness with a $158 billion stimulus package and more monetary easing.

The problem is that stimuli aren't a way to strengthen an economy for the long term, and I'm worried that the worst it yet to come for China.


Stimulus that never ends
China has been goosing its economy regularly since 2008. When the financial crisis began to grip the global economy, China announced a $570 billion stimulus package to insulate the Chinese economy from the fallout. The spending lasted two years and helped China maintain growth throughout the crisis.

China also stimulated the economy through expanded lending at state-owned banks (which I'll cover below). These banks provide funding for new businesses and businesses looking to expand. They're more focused on maximizing employment than on maintaining stringent lending standards.

This year's $158 billion stimulus package is less about a reaction to global events than it is about China's own economy. There was fear that China would grow more slowly than previously anticipated, and if the Chinese economy were to crash-land, it would be devastating to both China and the rest of the world.

But here's the question: When will China's economy stand on its own without the help of government stimulus?

You thought our spending was bad?
The official stimulus funds are just part of the stimulus China gives to its economy. The country's state-owned banks also provide financial stimulus to the economy, and they play a major role in industry.

In the solar industry, which I follow closely, the China Development Bank granted solar and wind companies up to $47 billion of loans in 2010, boosting production of both renewable energy sources. These were essentially lines of credit given to companies that never would have qualified for such funding in the U.S. The funds were used to build out capacity in wind and solar, which left both industries oversupplied. Profits for the companies that received credit, like LDK Solar (NYS: LDK) , Yingli Green Energy (NYS: YGE) , Suntech Power (NYS: STP) , and JA Solar (NAS: JASO) , dried up, and there's little possibility these loans will ever be repaid in full. This is just one example, but you can see this sort of stimulus in industries throughout China.

China isn't yet rampant with bankruptcies from companies or projects that should never have been built in the first place, but this may be coming. The Wall Street Journal recently reported that China's largest state-run banks have begun preparing for bad loans. Their provisions for bad loans are up for the third consecutive quarter, and they are worried about China's growth slowing (hence the stimulus).

Many of these loans rely on increased economic growth to become profitable. The loans to companies manufacturing low-margin goods for export rely on demand from global markets. Loans for housing developments throughout China rely on a growing and more affluent Chinese economy. The stimulus from the government, combined with the increased lending from banks, has propped up the economy and led to growth -- but neither of these strategies are long-term solutions. The situation resembles a house of cards on the brink of collapse.

Long-term trends work against China
One of the big challenges going forward is that China has built its economy on a foundation of abundant, cheap labor. But this isn't a long-term solution for any country.

Fellow Fool Morgan Housel has reported that China's working-age population is expected to shrink by a whopping 200 million people by 2050, due in large part to the one-child rule.

As China's workforce shrinks, the remaining workers will demand higher wages due to simple supply and demand. ABC News reported that at Foxconn, where most of Apple's (NAS: AAPL) products are made, the average starting wage was $1.78 per hour. A wage like that would be unthinkable in the developed world, and if China's workforce declines by 200 million, it will be unthinkable in China in coming decades.

We've already seen workers demand marginally higher wages in China, and as the workforce shrinks and the middle class grows, that challenge only becomes greater. If costs go up to manufacture products in China, what will happen to China's export economy?

U.S. companies have already started to bring some manufacturing back to the U.S., and it's likely more is on the way as the costs of labor and shipping rise. If a company like Apple could produce its goods in the U.S. for close to the cost of China, don't you think it would eliminate the headache and do so?

How does this end?
The big question for China is how it turns a stimulus-driven, export-based economy into a sustainable, consumer-driven economy. China is making some strides in this area, but the current direction has me worried that there could be a hard landing or a financial crisis ahead. There are tens of billions of dollars in loans that seem questionable at best, and China's labor situation seems like a long-term disaster.

China isn't a place I would like to be investing my life savings today with these challenges. Instead, more stable, safe economies like the U.S. seem like much better bets.

What to do now
With slowing growth in China, many investors are worried about heady growth going forward, but fear not, for "The Future is Made in America." Domestic manufacturing is poised once again to become the investment driver of the world -- and all because of one disruptive technology. You can uncover the three companies that will become the American Steel of tomorrow in our analysts' new free report. Just click here to read more.

The article It's Time to Sell China originally appeared on Fool.com.

Fool contributor Travis Hoium has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple and Suntech Power Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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