The eurozone’s political tarantella may still be roiling global markets but some of the world’s savviest investors are already turning their attention elsewhere.

It is not trips to Brussels or Frankfurt that analysts at large, secretive hedge funds are planning in the first few months of 2012, but data-gathering exercises in Shenzen and Guangzhou.

The past few weeks have seen China loom large in the nightmares of many hedge fund managers still smarting from a less-than glory-filled 2011. Concerns are rising for the global outlook over the increasingly negative economic signals emanating from the country.

As the Emerging Sovereign Group, a $1bn hedge fund backed by Julian Robertson and half owned by Carlyle, one of the world’s biggest private equity groups, told its clients in a recent note: “[we have a] gathering sense that the next act of this rolling global debt crisis may well play out in the East.”

Take the most obvious barometer. The Shanghai Composite has been locked into a steady downward trajectory since April that has seen it shed over 27 per cent of its value since then.

ESG sent a team for a two week “deep-dive research trip” to China in October, an investor told the Financial Times.

“Even though an aggressive stimulus program allowed China to sidestep a post-Lehman recession, rendering events there, for a time, secondary to developments in the US and Europe, the Chinese economy could soon take centre stage,” the firm said.

ESG is a voice to listen to: it is one of the few hedge funds that saw the eurozone crisis coming, and has made its clients a considerable sum as a result. Its flagship fund made 39.6 per cent in 2010 and is up a similar amount this year.

It is far from being alone.

“In China, both the official and the HSBC PMI [a reading on manufacturing activity] suffered significant losses in November,” Brevan Howard, the world’s second largest macro hedge fund, with assets of over $32bn under management, wrote to clients in its latest letter. “Worryingly, domestic demand was showing the bulk of the weakness according to both metrics.”

Brevan’s focus remains on the eurozone and US, but it has little doubt that growth in China is set to “moderate.”

But part of the problem many hedge funds face, even large traders like Brevan, is in reading the official data, which only gives a partial picture.

Few things, seemingly, cause greater alarm in Mayfair’s converted townhouses or Greenwich’s discreet office blocks than a lack of information. “Reading the economic pronouncements of the Chinese government is like kremlinology,” laments one UK-based hedge fund trader.

Faced with obscure communications, hedge funds such as GLG Partners are hiring their own analysts and intelligence gatherers on the mainland to stand outside factory gates, and, quite literally according to one GLG insider, “count the cars”.

The biggest worry most have of China is not just a manufacturing slowdown, however, but the popping of a massive credit bubble, finding accurate data on which is even more difficult.

The Bank of China’s new “total social financing” measure, which purports to cover the full gamut of credit extension, has, as ESG points out, increased by the equivalent of over 90 per cent of current GDP in the three years ending in 2011.

Now the measure is beginning to decrease, perhaps indicating the first signs of a crunch.

The picture being painted certainly looks familiar: much of the wave of stimulus money released by Beijing since 2008 went into construction and property. And so it is that western traders, wary of the lessons of subprime America, are now looking with some astonishment at the price even modest properties command relative to average earnings.

In cities like Beijing or Shanghai, apartments are said by analysts to sell for as much as 30 times average annual income. Compare that to just under 6 times for the worst-stricken subprime properties in the pre-crash US.

Hugh Hendry, one of the hedge fund industry’s most voluble figures, has long been critical of China’s property boom. It is only recently, however, that a jerky, homemade video he uploaded to YouTube in 2009 has become something of a hit in hedge fund circles. His surreptitious film of soaring skyscrapers, empty malls and deserted developments has had over 113,000 views.

Indeed, Mr Hendry seemed like something of a Cassandra when he launched a “short China” credit fund earlier this year. His performance has spoken louder than his words, however. His short China fund is up 52 per cent as of the end of November, compared to a loss of 4.3 per cent for his average peer.

The read-across from such returns could have far-reaching implications.

As Jonathan Anderson, an emerging markets economist at UBS declared in March, China’s property market, much like that of the US before it, is probably, “the single most important sector in the entire global economy.”

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