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Adding in local government debt to central government debt, railways, asset management companies and state owned banks, gives a better picture of total debt for China. This is an estimated $3.55 trillion or close to 59% of GDP compared to 93% for the U.S. The problem is no one really knows how much debt there is in the local government in China. Analysts say this understates nonperforming loans from China's lending binge after the 2008 financial crisis. Stephen Green of Standard Chartered Bank estimates China's total debt, including contingent liabilities, to be 77% of GDP. Arthur Kroeber of Dragonomics estimates it at 75%. China's Banking Regulatory Commission estimates that investment vehicles that have local government guarantees borrowed $1.17 trillion in 2009 and the first half of 2010. Century Weekly, a leading financial magazine, estimates this to be $1.52 trillion at the end of 2010. The large local government debt limits the ability of China's central bank to raise rates to control inflation, as every increase in rates increases the local government debt. For the U.S., excluding debt owed by one part of the government to another, such as Social Security, would bring U.S. debt to 62.2%. This would'nt include the debts of local and state governments, overhaul of Fannie and Freddie, or liabilities to pay future retirement and health benefits....

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Prof. Scott Kennedy of the Research center for Chinese Politics and Business, voices concerns of experts who think that the $585 billion stimulus and the doubling of lending this year, increase in exports by a third last month, all point to an economy that is expanding too quickly. Kennedy says that no one defies economic laws, that eventually endless growth can get get you in trouble. The concern is whether the overexpansion of credit and the size of the stimulus may have led to overreaction in stimulus spending. People's Daily newspaper of China said that China's leaders are moving much faster than leaders of developed nations. But the flip side of this is that in the rush to increase spending there may be a lot of wasteful spending resulting in many bad loans a few years from now.

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Su Liping, professor at Tsinghua Unversity, says there were 180,000 protests, riots and other incidents, protesting economic injustice in 2010. Most of the incidents were against land grabs, corruption and abuses by local officials, and unpaid wages. Inflation has hit the poor, migrant workers and people with low incomes hardest. Food prices were up 13.4% in August over the same month prior year. Pork prices were up 52.3%. Other problems are now meshed in with inflation. Local government debt in China, according to the National Audit Office, was 10.7 trillion yuan in June 2011. The National Audit Office estimates 23% of this, or 2.5 trillion yuan, depends on land for repayment. Analysts say China's local government made repayment in 2010 using the 2.9 trillion yuan in revenue from land sales. The same amount of land has to be sold in 2010 to make repayment. At lower prices even more land may have to be sold. The danger say Orlik and Jie, is that inflation and the pressure to acquire more land- and consequently more land grabs- will pose severe risks to the social contract in China....

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China's shift in emphasis from heavy manufacturing and the auto industry to other technologically advanced and less environmentally sensitive industries including new energy sources. The National Development Reform Commisson lists industries in 3 categories- encouraged, allowed, and restricted. The auto industry is now in the allowed or permitted category, and is no longer encouraged for the purposes of foreign investment and the granting of preferential tax or streamlined approval processes. Alternative energy cars, internet equipment and some service industries are moving to the encouraged category. The growth in the auto industry has slowed to about 3% in 2011 from 32% in 2010, with the change hitting the domestic Chinese brands the most. As a result more laws are expected to help technical know-how flow towards Chinese auto companies, according to IHS Automotive.

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The new Australian budget is designed to generate a slight surplus from the A$44 billion deficit for the fiscal year ending June 30. This prepares the Australian government of Julia Gillard for elections in 2013. The budget depends on the mining boom to generate the tax revenues for planned economic growth of over 3% in 2012-2013. This is based on the large number of projects planned for investments in oil, gas and other energy projects, valued at US$456 billion. GE as supplier of turbines and other products to the Chevron-Total gas project and other projects in Australia, has sales in Australia match its sales level in China in 2012-2013. This gives an idea of the extent of the boom in the mining and energy sector. Even the widening trade deficit to A$1.59 in March 2012 reflects large imports for the mining sector. The weakness of this approach is that too much is dependent on the mining and offshore gas boom. Retail spending is weak and Australia is increasingly looking like a two tier economy, subject to the boom and bust cycles that its mining companies have experienced in the past. A bubble in Australia's housing markets and uncertainties in the global economy pose other risks....

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Martin Feldstein says China is gaining control of three problems it faces of shrinking export markets, the effects from a large stimulus in response to the 2008 financial crisis, and inflation especially high real estate prices. The economy is shifting to higher role for services and less dependence on exports under the new five year plan. The real estate prices are levelling off after steep increases. And inflation is under control. New investment will go into infrastucture needs such as power development and low income housing. As the economic problems are being tackled, the political problems remain. China faces an aging population under its one child policy, and it will have to support an increasing number of retired people in the future. Inequality and corruption are two problems that continue to grow and present challenges to the new leadership taking over in 2013.

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China's premier, Wen Jiabao, opened the National People's Congress, annual meeting of the Chinese parliament, by saying that China had lowered its growth rate to 7.5% from 8%. GDP growth for 2011 was 9.2%. Wen set an inflation target of 4%. The CPI index increased by 5.4% in 2011. Wen set 14% growth target for M2, China's broadest measure of money supply.

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Chinese government data show that inflation was 3.1% in May 2010. The spread of wage increases in manufacturing after a series of strikes at Hon Hai and Honda Motor suggest that price pressures will grow even further. Analysts warn that China's central bank will have to raise interest rates to control the boom in the economy and property markets; that merely reining in credit will not work. They also suggest the need for swifter action in revaluing the yuan. As wage increases spread throughout manufacturing, this will eventually be reflected in higher prices of end products.

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Since 2004 consumer spending's share of the economy in China has fallen from 40% to 35%.

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Simms looks at the Plaza Accord of 1985 and the 60% appreciation of the yen, the lowering of interest rates and the real estate bubble that followed, and what this tells China's economic planners about managing the renminbi. A academic member of the People's Bank of China, Yu Yongding, sees one of the lessons as how Japan mismanaged the aftermath and creation of the asset bubble. There may be different complexities in China's situation with the increase in local government debt and loans in the shadow banking system, so that China cannot become complacent.

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The political risk in China as the change of leadership takes place in 2012, and with the removal of Chongqing party chief Bo Xilai. The slowing of manufacturing activity and slowdown in growth expected in 2012-2014. Export growth declines to 6.8% from 14.2% in the fourth quarter of 2011. Quarterly surveys by the central bank shows demand for loans is dropping. And the HSBC purchasing managers index shows a reading of 48.1 in March, declining from 49.6% in February, showing shrinking manufacturing activity in China- anything less than 50 means contraction is taking place.

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The Editorial Board of the Washington Post draws attention to the speculative bubble in housing in China, the policies for sale of land by local governments that fuel the bubble, the corrupt local officials, and GDP growth that reflects overinvestment in housing creating serious imbalances in the economy. The structure of the economic and political system which promote this overinvestment in real estate has also reduced the role of the Chinese consumer in GDP growth, and is preventing a rebalancing of the world economy.

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Concern about slowing growth in China with rising inflation. The problem of opaqueness of the financial system and of banks that are both listed companies and run by the government, and how this could accelerate a slowdown at some point with accumulated problems in the financial system. A sense that China's growth model has reached a limit, and whether there will be a soft landing.

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Pessimism about the pace of democratization in China with the continued dominance of the Communist party in the business and economc structures of the country. The interrelationships of the party with state owned companies and the role of its 80 million members in running all aspects of life in China. Experts in China say the 18th party Conress showed no signs of change in the party's control and no sign of experimentation to allow for change comng from within the system so that China could establish a constitutional democracy with the rule of law. Experts in China say the new leaders Jinping and Keqiang may not be able to make changes even if they wanted to, because of the party's control and the earlier presidents and prime ministers from the last two decades who still retain a strong influence on the direction of the country.

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After overly aggressive bank lending following the financial crisis of 2008 China is now badly overextended. China has also learned from the U.S. experience about the risks inherent in growth generated from a credit boom. In 2009-2010 China was also getting less bang for the buck in terms of the increase in lending needed to generate growth compared to earlier periods. Orlik says don't expect China to help the global economy the way it did in 2009-2011, and that there is no Plan B for China.

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Spain's central bank was lauded for macroprudential supervision before the housing bubble burst. Will China's central bank and financial authorites which have managed the housing bubble upto this point face similiar problems? Can China be the sole exception even as housing bubbles burst with wide repercussions in the U.S., UK and Spain? Nicholas Lardy, of the Peterson Institute of international Economics, says urban housing stock makes up 41% of Chinese household wealth in 2011. The same figure for the U.S. is 26%. Chinese buyers invest in homes because low interest rates on savings accounts cannot keep up with inflation. Real estate investment was 13% of GDP in 2011. Home ownership is a recent development in China, only since 1990, Chinese have never experienced large price declines. Household debt as a percentage of disposable income has increased significantly in recent years, up to 53.6% in 2011 from 31.3% in 2008, according to Lardy.

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Central Huijin, part of China's sovereign wealth fund, China Investment Corporation, bought shares of China's four major banks in October 2011 to prevent steep price declines. China's bank stocks have lost about a third of their value in 2011. The four major banks- China Construction Bank, Agricultural Bank of China, Bank of China, and the Industrial and Commercial Bank of China- control two-thirds of the banking industry in China. In China's interlocking system of relationships between the state, the banks and the state controlled industrial companies, Central Huijin owns 35.4% of Industrial and Commercial Bank, 67.6% of Bank of China, and similiar stakes in the other 2 banks. It was created in 2003 to bail out China's banks after bad loan losses, and was transferred to China Investment Corporation in 2007. As part of the 2007 move bonds were issued by CIC to compensate the central bank. This means the banks pay dividends to CIC so that it can make payments on the bonds. Today the 4 major banks pay half of their earnings in dividends to CIC. CIC chief Lou Jiwei, says Central Huijin needs 300 million renminbi a day, or $47 million to pay interest on the bonds to the central bank. The 4 major banks are also under pressure from China's regulators to increase their capital reserves, because of large bad loans to local governments after the global financial crisis of 2008....

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The author Li Congjun, is head of the Xinhua News agency, official press agency of the People's Republic of China. He calls for rebalancing the global economy with China depending more on domestic consumption, efforts to restrain the excesses of property and asset price bubbles, and renewed focus on technology and investment.

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Easwar Prasad, Cornell University economist, and a former head of the IMF's China division, says the new report by the World Bank and the Development Reform Commission (DRC), is part of an effort by government officials in China to push the agenda for change forward during the transition to a new leadership. This includes Premier Wen. There is pushback from large state enterprises. The DRC and the World Bank had called for a change from the current situation to allow more private sector involvement in the economy, which means restricting the growth of the large state owned companies and letting the private sector operate in more parts of the economy. The alternative is to see growth slowing quickly and -some economists- say suddenly without warning. The role of Zhu Rongji, a former prime minister during the period Jiang Zemin was president, in pushing for changes appropriate to the period, is also cited. The last decade under prime minister Wen Biao is seen as one in which China relentlessly pursued its currrent export led model of development with large state run companies and state run banks dominating the economy. This has made change even harder to achieve because of the pushback to preserve the status quo....

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In an interview with the Wall Street Journal, Mark Carney, the head of Canada's central bank and the head of the Financial Stability Board, says China is falling behind in its earlier committments made at G-20 meetings to move towards rebalancing the world economy. He pointed to the fact that consumption in China has moved from about half of China's GDP to about a third, in the last ten years. China's investment has also declined from half of GDP to about one third. Carney also raised concerns about the strength of the Canadian dollar for Canada's competitiveness. The report "China: 2030" by the World Bank and China's Development Reform Commission also calls for changes in the way China's economy has increased its dependence on state run companies.

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A shift in priorities away from focussing on high growth to lower sustainable growth was announced by China's premier Wen Jiabao at the National People's Congress, China's parliament, in March 2012. This shift will reduce investment in infrastructure, power generation and exports, which will affect the level of imports of commodities from commodity producing nations in the Middle East, Australia, Canada and Brazil. It should increase imports of software, computers, entertainment, tourism and high tech goods from the U.S. and Europe. Chinese leaders have said they would make this kind of shift for some years now but growth has consistently increased more than the target rate, and domestic consumption as a percentage of the economy has actually decreased in the last decade. Now 9-10% growth rates may be a thing of the past and the target of 7.5% set this year may be actually closer to the real figure. The Chinese leaders have belatedly realized the need to make these changes now because slowing markets in Europe -which is seeing declining growth and high unemployment- and in the U.S., make the issue impossible to avoid. Wen told the Congress: "Accelerating the transformation of the pattern of economc development... is both a long term task and our most pressing task at present... Domestically it has become more urgent but also more difficult... to alleviate the problem of unbalanced, uncoordinated and unsustainable development." This is his way of saying that its unavoidable and better to start in earnest now, and at the same time recognizing the resistance to change from the stateowned companies and the other interests who have benefitted from surging growth, and now occupy a central role in the power structure. An opinion article in the People's Daily, China's official newspaper, said: "imperfect reforms are to be preferred to a crisis caused by no reforms." The World Bank's president Zoellick is respected by the Chinese leaders. He also urged them to make changes now. The recent report of the DRC, China's planning research arm, and the World Bank, also laid out the new direction away from a focus on infrastructure to domestic consumption. The fear is sudden deceleration in the absence of policy action. The impact of this will be negative for commodities over time, leading to slower growth in Australia, Brazil, and Canada. It should boost imports from Europe and the U.S. of high tech, consumer, pharmaceutical goods over time....