Stories like this scare the hell out of me. Right now, the world is depending on China – and particularly the Chinese consumer – to drive demand and keep the economy from crawling to a halt. The only problem is that there is little or no transparency in the Chinese economy. The Chinese government – especially local governors – have every incentive to fudge the numbers in order to keep incomes rising and maintain social stability. But if the people figure out that the emperor has no clothes, then the whole thing is going to come crashing down. Think the 1997 asian financial crisis, but much, much worse.
We’re all counting on the Chinese to bail us out, but who will be left to bail out the Chinese?