I'm not sure what effect an economic bust in China would have on the United States or the rest of the world, but we were very concerned about the Asian contagion a few years ago. Is the world in a bigger bubble which only began to pop in 2001? There are many who believe much of the boom is involves building many factories, a large number of which will remain idle because demand does not support so much capacity. Busts, like booms, can gain momentum. Once the evidence of overcapacity becomes unavoidable, the value of these factories on the owners books must be written down. When people stop building as much, the construction industry collapses. A huge portion of China's economy is involved in building manufacturing capacity and manufacturing itself.

Beyond the rosy China stats: Problems
By Macabe Keliher

HONG KONG - China's official economic growth figures are out, and while they do tell of a strong economy fueling much of the regional and even world-wide growth, they also point to tremendous production capacity, which, some economists say, the system cannot support.

The Chinese economy grew 9.1 percent last year, its fastest in seven years, to 11.67 trillion yuan (US$1.4 trillion), according to the National Bureau of Statistics. After a strong first quarter of 9.9 percent growth, the SARS crisis slowed the second quarter down to 6.7 percent. But the economy quickly recovered as foreign direct investment continued to flood in, driving third and fourth quarter growth to 9.6 percent and 9.9 percent, respectively. It was the strongest annual growth rate since 1997.

Such growth accounted for 16 percent of the world's 2.5 percent economic growth in 2003, according to a United Nations report last week. China, it said, "will benefit the world economy as a whole".

Regionally, Beijing likes to say it has pulled its neighbors out of the financial crisis to new prosperous beginnings. China currently runs a trade deficit of $43.4 billion with Asia, and a combined deficit of almost $60 billion with Taiwan, Japan and South Korea. "China's growth promoted the ASEAN [Association for Southeast Asian Nations] economic recovery," says a Chinese Foreign Ministry official who asked not to be identified. "A healthy percentage of ASEAN growth is based on China."

China is buying up large amount of resources from around the region to fuel its growth. Products like liquid natural gas from Indonesia and Australia, rubber and palm oil and air-conditioners from Malaysia and steel and tin from other Southeast Asian countries. Beijing is pushing for trade between China and ASEAN countries to double in two years to $100 billion.

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Foreign direct investment, FDI, may be waking up the country's overcapacity realities. After expanding 12.5 percent in 2002, and double digits in years previous, total FDI in 2003 grew only 1.44 percent to $53.5 billion, according to the National Bureau of Statistics. Margins in the manufacturing industry have been squeezed due to competition and the amount of product hitting the market. The International Finance Corporation, for instance, the World Bank's investment arm, has stopped financing or investing in the manufacturing industry. Says one source at the IFC: "It's already over-invested."