The following trends and events are identified as material to an assessment of China’s near- and mid-term economic outlook:

1. The extent of dependency of the Chinese government on hard currency earnings derived from manufactured exports supported largely by U.S. consumer spending.
2. The depth of the retreat in U.S. consumer spending and the high probability of a prolonged contraction of the U.S. economy.
3. The fundamental dynamics responsible for China’s domestic wage and price inflation and the increased risk of political instability attributable to the rising cost of imported consumer and industrial commodities, reduced demand for export products, and a significant increase in urban unemployment.
4. The rate of increase of China’s petroleum consumption and the dependency of China’s export manufacturing sector on petroleum imports.
5. China’s ability to maintain the global competitiveness of Chinese manufactured goods in the face of rapidly increasing transportation costs.
6. Government debt statistics evidencing an unsustainable overreliance on debt financing, particularly short-term debt, to sustain economic growth.
7. Repudiation by the Government of China of $260 billion of its sovereign debt and the pending reclassification of the Chinese government’s sovereign credit rating into ‘Selective Default’.