Consistently, on the other hand, what I hear from Washington strategists is that they can not make policy decisions based on the hope that China's economy with deflate or implode (not to mention that this would offer its own kind of disaster to the West - look at what Thailand unpegging the dollar did in '97). Their assessment is quite divergent from yours. Although it shares so many features with the many before you who have wrongly predicted an implosion it would be interesting if you were right. To reiterate my earlier point Washington behaves off its beliefs and it believes that growth in that hemisphere, plus growth in China, will make the Asian theater the dominant one for the next half century.
Luckily for the world all predictions made in this thread are falsifiable - we need only watch to see what happens over the next couple of decades to find out. :)
If it weren't for perpetual stimulus, and truly epic debt accumulation, their economy would already be contracting. And that's before the bottom billion people in China have an opportunity to participate in a better life. The painful reality is, there are not enough resources, savings, or consumers to lift China's bottom one billion up to even the levels of a mid tier economy (~$15k incomes) - at least not in this century. They're entering Japan's debt phase of the post growth bust - the point where the country gets desperate to maintain its growth and so turns to accumulating debt - and they're doing so before having even a mediocre social safety net.
When you have to take on $5 in debt to get $1 of GDP growth, your growth is over. Ten years ago their return on invested capital, and return on debt had already begun to plunge. At this point China is far beyond yielding good enough returns on the debt they're accumulating. Now it's merely a question of when China enters a debt panic, as all of their 'growth' gets starved out due to debt obligations.
7% GDP growth equates to $600 to $700 billion in new GDP per year for China. They're taking on $4+ trillion per year in new debt annually. To maintain above 5% growth, they will probably have to take on another $30+ trillion in new debt the next six or seven years alone (based on what it has taken to reach the growth levels of the last five or six years, and assuming a continued decline in return on that debt).
Their liquidity mess has resulted in one of the greatest stock market bubbles in history and will soon implode; 2/3 of the investors participating don't even have a high school equivalent education level. Their real estate bubble has already begun to implode, pushing fleeing money into the new bubble in equities. They're also bleeding foreign capital, whereas previously capital was desperate to enter China.
There are only two possible outcomes for China the next 20 years. A lost 20 years like Japan, for similar reasons, following the implosion of both a real estate and stock market bubble (again mirroring Japan). Or China acts very aggressively, very quickly to curb debt accumulation and to pop existing bubbles - that will result in extremely mediocre growth (1% to 3%) for a decade or two, after a period of painful contraction.