The increasing frequency of high-level, top-down interventions over China’s economy can only mean one thing: the markets are forcing hard choices that China’s ruling elite would rather not have to make.

Take for example the recent news, twice in three days, that China stands ready to purchase Eurozone sovereign bonds from debt-distressed sovereigns. Or, the news that China has raised both lending and deposit rates by 25 basis points (0.25%) in a bid to cool down inflation that is making houses and food unaffordable. Both are terrible ideas in the current situation, except for all the other alternatives which are even worse.

A number of pundits are now arguing, with good reason, that China is in for a hard landing in 2011. See two excellent posts on this subject by Mish (here) and Michael Pettis (here). China’s conundrum is that in the wake of the global crisis, now entering the third year of its acute phase, it played the only hand it could: unsustainable domestic malinvestment, such as brand new empty ghost cities built for millions of people, or 65 million empty apartments bought as “investments” at U.S. prices, when the average income in China is only $3,500 p.a. All this malinvestment was supposed to replace the lost demand for exports until things turned around. The trouble is, things have not turned around, but they are arguably getting worse, with Europe held in the vice of a second and more insidious credit crunch.

And the trouble doesn’t stop there. As we have discussed in the past here on this blog, the U.S. crisis response post-Lehman and post-stimulus was a classic setup for an emerging markets bubble, whereby loose money and the violation of interest-rate parity finds its way to the place with the highest return. That inflationary bubble has not only overran China, but also India, where food and fuel inflation is running rampant.

Canada’s and Australia’s property bubbles are also ripe for pricking. A hard landing by China, triggering an exodus of speculators from commodities, will quickly drain a massive amount of liquidity from these two commodity-exporting economies at a very precarious stage in their property bubble problem. This blog still expects a more or less synchronised (and terrifying) collapse of the Chinese, Australian and Canadian property bubbles.

Overall, the Asian Jenga tower has reached scary heights, supported by the fact that China can force non-market outcomes on some of its domestic sectors, some of the time. But like all Jenga towers, the higher they go, the harder they fall.