Might inflation, overproduction and real estate bubbles stop the Chinese train?

The rise of the BRICS, Brazil, Russia, India and China, as serious economic entities on the global stage has caused considerable debate about global economics, the role of the US economy as the major purchaser of last resort and the shifting relationships between the powers. This has intensified since the economic crisis that began in 2007 heightened by events like the European debt crisis, the Arab revolts and recent environmental disasters of catastrophic proportions like the Gulf spill and the Japanese nuclear holocaust.

I follow events in China a little and it is China's rise that is seen as the greatest threat to the dominance of US imperialism.  The fate of the EU and its currency is in question at the moment and will be further threatened if what has happened in Greece spreads to Spain, Portugal, Italy of Ireland.  This seems unlikely, as the consequences are so dire but it cannot be ruled out.

The future of China itself is not without serious dangers.  The country has massive foreign reserves but there is already  overproduction in some industries like auto and over investment in real estate as investors and savers parked money in that sector due to a savings rate below inflation at 3.5%.  China has raised interest rates five times in the last 9 months but is still having trouble with inflation which at 6.4% is the fastest since 2008. 

It appears now that the pouring of money in to real estate has lifted supply above demand.   Standard Chartered Bank says that the inventory of unsold apartments has gone from zero to three months in  a year.  The collapse of real estate or a serious slowdown would have a major effect on the Chinese economy as many Chinese could lose their savings and local governments that invested in real estate would lose their investments says Business Week. These local governments "rely on land sales for over 60% of their revenue" Business Week adds. It becomes obvious that if there is a real estate crash then land prices will decline which will not only mean lost investments for these local governments but also a huge drop in spending on locally produced commodities as well as imported materials.  According to the Chinese government, small business accounts for 80% of employment.

I guess I am just returning, in some ways for my own peace of mind, to the question of China and the potential for severe social upheavals there.  There have been thousands of demonstrations mostly over land seizures but there were also successful strikes at auto plants (namely Honda) and other factories.  Check out the China label on this blog for other pieces on China including the Foxconn plant.  The strikes forced the Chinese bureaucracy to raise wages by as much as 20% in some instances and some manufacturers are considering cheaper locales like Vietnam.

The world economy is more integrated than any time in history and such domestic developments will have severe repercussions outside of China.  The country consumes almost 50% of the world's production of iron ore, coal and steel.  China consumes 40% of the world's copper and any slowdown in that area would have severe consequences on Chile which sends 23% of its exports China's way, much of that in copper.  Australian mining has been roaring ahead on the basis of Chinese demand for raw materials and even British shipping has been given some life.  And any serious slowdown in China would curb its ability to lend the US money forcing US capitalism to increase interest payments on its bonds which would mean increased debt servicing costs for US taxpayers.

There's a lot that go awry ahead.