Here is a critical view (hat tip Zero Hedge) of the potential risks associated with the Chinese credit bubble.

The China report gives one of the first glimpses into 2014 and follows Sunday's industrial production number that was 9.7% vs. consensus of 9.8% (a tiny difference but since the numbers are manipulated in China, some people thought this slight IP miss last Sunday had some relevance).

Bottom line: China's economic growth is slowing. For now we do not yet know for sure whether that slowdown will be importantly impactful to global growth and, in turn, global equities. The more important point is that the rampant growth in municipal and corporate debt in China has delivered a potentially lethal and quantum increase of nonperforming loans in the Chinese banking system and shadow banking system. This has constrained lending and will likely translate into slowing economic growth in the region.

What will China do to avoid this slowdown? The public infrastructure build out option is a nonstarter, as there is already too much of it. The same applies to the private sector infrastructure complex.

What China needs is to shift from export/infrastructure and debt-driven growth to consumption-based growth and reform. However, with the banks and other financial intermediaries constrained, a tough transition lies ahead.

On one hand (Column A), the Chinese growth challenge and credit risks are issues/problem that are well known to investors, and the bulls argue that this has been discounted, as China's stock market has been among the worst in the world over the past 12-15 months. "The China Problem," to many in the consensus, was one of the concerns widely held as we entered into 2014. (That consensus was highlighted in my "15 Surprises for 2014," and that universality of concern kept me from listing it as a surprise.)

On the other hand (Column B and my view), the ramifications of a Chinese economic slowdown and a potential credit meltdown may have not been discounted by the U.S. stock market and other global equity markets.

I am out of the office at a breakfast meeting, so there will be no "Morning Market Look" this morning.

At the time of original publication, Kass was short SPY.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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