Is China just too big to fail?

This weekend's G-20 summit in Shanghai, which kicks off China's yearlong presidency of the world's most important economic grouping, will showcase Beijing's dramatically increased clout on the world stage since the global financial crisis of 2008-2009.

In the run-up, China's notorious industrial overcapacity is gaining prominence, emerging as an increasingly hot-button issue that's straining ties with Europe in particular.

For their part, China's Asian neighbors are adopting a "wait and see" attitude towards Beijing's latest promises to kill its "zombie companies".

China is increasingly seen as being "too big to fail" - if the financial markets are to be believed, it's already the single greatest factor weighing on investor sentiment. And even the Fed is basing its decisions increasingly on what happens there.

The "too big to fail" factor is recognized by some to be the biggest reason the yuan won't collapse; indeed, even China bears increasingly understand that betting against China means betting against the entire global economy (including the US), like this analyst who says the following (my emphasis):

...in case the yuan depreciation argument stands on solid grounds, it may be a better idea simply to short the US markets, and that would be much cheaper than shorting the yuan!

So yes, China can crash and fall alright...but the anxiety about this prospect shows just how far along it's come.