Excellent read on the brewing credit and inflation crisis in China, with an interesting note about the benefits of cheap rural labor running down. Albert Edwards from Societe General said the OECDs leading indicators are signalling a "downturn" for Asias big five (Japan, Korea, China, India, and Indonesia). The China indicator composed by Beijings National Bureau of Statistics has fallen almost as far as it did at the onset of the 2008 crash. "I remain convinced we are witnessing a bubble of epic proportions which will burst catching investors as unawares as the bursting of the Asian bubbles of the mid-1990s. Ignore these indicators at your peril," he said In a sense, inflation is a crude way of curbing Chinas export surpluses and therefore of resolving a key trade imbalance that lay behind the global credit crisis. If China continues to stoke inflation and blaming the US Federal Reserve for its own errors help there will no longer be any need for a yuan revaluation against the dollar, and the US Congress can shelve its sanctions law. On a recent visit to a chemical plant in Suzhou, I was told by the English manager that wage bonuses for staff will average nine months pay this year. This is what it costs to keep skilled workers. His own contract is fixed in sterling, which has crashed against the yuan over the last two years. "It is a sobering experience," he said. China may have hit the "Lewis turning point", named after the Nobel economist Arthur Lewis from St Lucia. It is the moment for each catch-up economy when the supply of cheap labour from the countryside dries up, leading to a surge in industrial wages. That reserve army of 120m Chinese migrants everybody was so worried about four years ago has already dwindled to 25m. .. China's credit bubble on borrowed time as inflation bites - Telegraph The article also notes that private credit in China is 148% of GDP - over three times that of other emerging markets; and the real estate market in major metros has run amok with prices at 18 to 22 times disposable income (the U.S. at the peak of the subprime bubble was at 6.4 times disposable income). It's going to be an ugly mess when it bursts.