China's economic growth has been described as staggeringly impressive in many quarters especially in the last few years. One of the most recent examples of this impressive is the huge amount of foreign reserves that China has amassed which now stands at around 1.4 Trillion $US. With this amount, China has a lot of potential to impact world financial markets significantly especially through using some of its reserves to make investments and purchases of foreign assets.
Well apparently, not so fast as the following article says.

This article in Asian Times warns of a coming crash in China's stock market but it also paints a pessimistic picture of China's financial health, specifically that many of China's banks which are state-owned, are basically unprofitable and holding onto bad loans which combined total over a trillion. Many Chinese state-owned enterprises borrow large amounts from these state-owned banks which many do not pay back.
The following excerpt explains this scenario:

"To see why a crash may be coming, it is worth examining the behavior of the China Investment Corporation, the US$200 billion sovereign wealth fund set up by the Chinese government in September.
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Six weeks ago, the power of sovereign wealth funds was celebrated and China Investment's moves into the market were awaited with bated breath.
Well, so much for that. A third of China Investment's portfolio is to be invested in Central Huijin Investment Company, a purchaser of bad loans from the Chinese banks, and another third will recapitalize China Agricultural Bank and China Development Bank, to shape them up for privatization.
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The lackluster investment strategy of China Investment exposes a central flaw in the Chinese economy, its lack of a rational system of capital allocation. For more than a decade, Chinese state-owned companies have made losses and have been propped up by the banking system.
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None of these losses have resulted in bankruptcy; instead the cash flow deficits have been covered by the Chinese banks. As a result, these banks have an enormous volume of bad loans $911 billion at May 2006, according to a later-withdrawn estimate by Ernst & Young, which must surely have ballooned to $1.2 trillion to $1.3 trillion now.

That explains why China Investment is somewhat unaggressive in its international investment strategy. China's $1.4 trillion of reserves will in fact almost all be required to prop up the banking system when the inevitable liquidity crisis occurs."

The writer goes on to say that with this huge banking problem, China will experience an economic downturn such as what happened to Japan in the nineties after exorbitant corporate overspending and the subsequent bursting of their economic bubble. Slow economic growth or huge inflation will ensue and then China might experience significant domestic turmoil. This will surely have a very negative effect on the world economy especially as the US economy isn't doing so good lately.