China's economy is a complete mess.
China's export markets have collapsed, and the government is desperately trying to encourage consumption by subsidising big employers to produce stuff that nobody wants. Warehouses are filling up with junk which nobody is buying - because they know they will get better discounts tomorrow. Prices are falling fast.
The consumption stimulus is working for now, as shown by the sudden interest of the Chinese consumer in American products. But it won't last, because the Chinese still lack a social security network. Saving, not spending, is the only thing that keeps the wolf from the door. Those savings have to be invested, but there are very few good investment options.
Of course, China might have developed a social security system were it governed by democrats who shared the concerns of the common man. Instead, the communist party continues to blow money on infrastructure white-elephants and moribund factories. The Party is terrified that millions of disgruntled ex-factory workers will do in 2009 what students failed to do at Tiananmen twenty years ago. China has a weak political system that cannot cope with economic pain, so it is sedating itself in the hope the illness somehow disappears. It won't work.
