Is the Chinese economy overheating, cranking up and moving to a level that is unsustainable?
Is this threatening the huge expansion here in Australia, as well as the immediate future of BHP Billiton's ambitions for Rio Tinto?
It certainly looks like it.
In a busy week figures out yesterday show retail sales running at an 8 year high.
They rose 18.1% last month compared to October 2006.
That was up on the 17% rise in September and confirms that everywhere you look in China; the growth rate is accelerating, not steadying or slowing.
It was the biggest gain in retail sales since 1999.
This week has seen a record trade surplus of $27.05 billion reported for October; the 13th tightening this year in the loan reserves banks have to maintain in yet another attempt to cut lending; a rebound in inflation to a 11 year high of 6.5%, a sharp rise in producer price inflation, a stampede over cheap cooking oil which killed three people, and now reports, just revealed, of a freeze on Chinese banks making loans on real estate and to companies in polluting industries.
The combination of all of these raises the question of whether China is heading for a crunch. The local stockmarkets remain over-heated, even though they are now becoming more sensitive to moves like the weekend's tightening of lending.
The problems with inflation showed up in the sharper than expected rise in sales of meat, poultry, eggs, grain and edible oil. They jumped a reported 45% in October from a year earlier. Spending on clothing and shoes jumped 33%; car sales climbed 36%, household electronics, 31%.
Economists reckon that a quarter of the growth in retail sales was due to price inflation; which is quite believeable given the huge rises in the cost of pork, oil and vegetables over the past year.
China's main share index, the CSI 300 Index of shares has soared more than 150% so far this year and rose 4.2% yesterday, shaking off fears of an inflation crunch.
The rebound in inflation last month was a major surprise, driven by a 60% rise in the cost of pork from a year ago and a 30% rise in the cost of vegetables, with cooking oil up by more than 20%. And even if the trade surplus wasn't $US30 billion as all the American and local analysts had forecast, it was still a record.
And if the economists are right and the lower surplus is not a one off, is this a sign of a cooling in the pace of economic activity in the country?
And if it is, why then a freeze on loans?
The freeze was reported on the Financial Times website yesterday (http://www.ft.com/cms/s
/0/80fcfe14-91a5-11dc-8981-0000779fd2ac.html?nclick_check=1) and it follows the freeze last month on all government charges, fees and prices (at all levels) until the end of next month.
But according to the FT story there's no official directive, the government tells the foreign banks and companies what can and can't be done in quarterly meetings, while instructions are being given to local banks and financial institutions more frequently.
"Companies investing in Chinese real estate or heavily polluting industries, including some foreign companies, have been told by bankers that they cannot access credit before the end of the year because of a government order to freeze lending.
"China has for some time tried to rein in the rapid increases in bank lending that have contributed to rising consumer and asset price inflation. But a renewed effort is affecting foreign banks and companies for the first time as the central bank and regulatory officials step up their "window guidance" to try to cool the overheating economy.
"Executives working at locally incorporated foreign banks said they had not received formal orders from authorities. But in quarterly meetings and regular phone conversations they have been "advised" not to lend to the real estate projects or polluting industries.
"Domestic state-owned banks must attend separate and more frequent meetings where a similar but far more forceful message is delivered, along with a directive to halt new loan growth altogether until the end of the year.
"The Asia head of a major foreign manufacturing company with operations in China said he had been told by the company's Chinese and locally incorporated foreign banks that it would be unable to draw on credit lines for the foreseeable future because of instructions from the government.
"Since the start of November most banks and even some rural credit co-operatives have stopped issuing loans," said an executive at a Chinese animal feed company. "I was also told that I might have to wait until March next year."
The Government had to break its self imposed price controls last week to allow domestic cost of petrol, jet fuel and diesel to rise 10% to help the local oil refining and distribution companies which were facing huge losses and cash flow problems from the surging world price of oil.
Now China is certainly not a basket case, but the combination of high inflation, lending pressures and still strong investment has the Central Government worried. The danger is it could engineer a sharper than anticipated slowdown which might produce an overshooting.
For the likes of the Australian resource industry, a slow down in Chinese economic growth to 5% a year would be painful because it would produce a rapid build up in world supplies of commodities, and remove the price tension in products like iron ore, which seem to be the big story in the Rio takeover bid
Other commodity prices are already slowing: oil, copper and gold fell again overnight even though the US dollar weakened and Wall Street jumped. Copper is down 15% in the past month, zinc by the same amount. Oil is up 9%, but it's down $7 from the peak last week of $US98.62 a barrel; but aluminium and
