There is universal agreement that China is increasingly the U.S.’ No. 1 policy concern.
But perhaps never in the history of modern Sinology has there been such difference of opinion about what is happening in China and what – if anything – the U.S. should and could do about it.

One reason is some Old China Hands have changed sides rather abruptly, no longer convinced that there is “a peaceful rising China” — which incidentally is a slogan Beijing itself has dropped.

True, there have been times when there was enormous difference among China scholars, not least during World War II and immediately afterward when in 1949 the Communists took over. There were a lot of “they ain’t Stalinists, just agrarian radicals” around; some with very long greybeards still in business not having yet offered a mea culpa.

The argument today, however, is much more complex: it’s whether China is indeed a behemoth with a growing military aiming soon to dominate East Asia if not the world or a wounded and ailing giant about to collapse, or at least stagnate economically and politically—or, indeed, both.

The first position is pretty much known, in vague terms if not always laid out with the corresponding demands that presents for U.S, policy.

But it is the second position that a crippled China will threaten international economic security, has been less ventilated. In fact, this latter analysis may come as a surprise to most since we all have to hand with our daily shopping the China as the new source of all the goodies we crave in our consumerist society.

Again, all aspects of the growing questions about China’s economic wellbeing, are as complicated as everything else about that vast population of 1.3 billion, one which is rapidly urbanizing as it moves into cities in a jump that took other societies decades if not generations.

Briefly, here is a scorecard:

Growth dropping dramatically. It has been considered axiomatic for some time that Beijing’s leaders were swapping high growth for their Communist tenets as justification for continued oppressive one-party rule. More important than arguments over official growth figures– perhaps 7% at the moment – is how fast it is dropping, from quarterly expansion of nearly 20 per cent in 2011 to just 5.8 per cent in the first quarter of this year.
A growing debt bomb. China got through the 2008-9 international crisis unscathed with a gigantic monetary expansion twice as big and distributed twice as fast as the U.S. stimulus with state-owned banks lending without regard to risk Growth zoomed to over 20 percent in 2010. But that’s left float a huge corporate debt, risen since 2007 by 50 percent. Regional and local government debt, based on sale of land which is now exhausted, is enormous – and truth be told totals are unknown.

Capital flight in full wing. Although Beijing holds $3.73 trillion in reserves, they fell $260 billion between June and March with $300 billion in financial outflows in the six months through March. With a tiny superrich elite holding more than half China’s capital, any collapse of confidence could turn into an avalanche just as Beijing is attempting risky partial liberalization of its controls on capital, and plumping for the renminbi to become a reserve currency..

Stock market fiasco. With Shanghai’s market a casino — Chinese investors hold shares for an average of only four weeks – its recent escalator ups and downs have to be seen as a confidence indicator not as a investment repository. That’s why Beijing’s money managers had to switch gears suddenly in mid-June from tightening credit to unleashing the monopolistic government banks to permit a refinancing of the collapsing stock market..

Overseas investment spectaculars. As the drop in China’s growth sank the world’s commodities markets, Beijing is stuck with relatively huge overseas infrastructure developments in oil-producers such as Angola who can’t now pay their debt with high-priced oil. That’s one way Beijing’s problems are part of a world scene with a continuing Euro problems and a dawdling American recovery.

So while all eyes are focused on the Greek crisis, China’s dark shadow is quietly falling at the other end of the world’s economy leaving American policymakers in a quandary, about whether Washington faces an increasingly powerful aggressive China or one about to bust — or both.

* This was first published at yeoldecrabb.com