It’s amazing how quickly China went from being the world’s savior to its biggest danger. To recap:

When the developed world stepped off a cliff in 2008, China responded by borrowing about $15 trillion and spending most of it on infrastructure. Roads, bridges, skyscrapers, power plants, whole cities went up around the country. The resulting demand for everything from iron ore to wind turbines helped offset contractions in the US and Europe, turning an incipient global Depression into nothing more than a severe recession.

But government-directed growth on this scale produces a mountain of misallocated capital which eventually comes back to haunt its owner. Lately, Chinese manufacturing has begun to contract:

China Output Contracts at Quickest Pace in 18 Months

The HSBC Flash China Manufacturing PMI shows Output Contracts at Quickest Pace in 18 Months. The overall PMI index, new orders, and production were all lower.

Key points

• Flash China Manufacturing PMI™ at 48.1 in March (48.5 in February). Eight-month low.
• Flash China Manufacturing Output Index at 47.3 in March (48.8 in February). Eighteen-month low.

Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co – Head of Asian Economic Research at HSBC said: “The HSBC Flash China Manufacturing PMI reading for March suggests that China’s growth momentum continued to slow down. Weakness is broadly-based with domestic demand softening further.

And mass defaults are looming:

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