Bloomberg TV has a piece on what hedge fund manager Jim Chanos, who called the Enron bubble, calls "ghost cities" -- enormous towns, hundreds of thousands of housing units and hardly anybody living there. "People haven't wanted to think that he China growth miracle might not have as much to it as they thought," Chanos tells Bloomberg.

The Bloomberg reporter passes along some of the Chinese argument -- the government is building for the long term, the developer presold all the units etc etc. But nobody lives there. No matter how you spin it, those are unproductive assets representing poorly invested capital. Sooner or later that has to tell a macroeconomic tale -- no matter how much the Chinese government claims the paper backing the assets is valued at par.

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Economist Michael Mandel seems guardedly optimistic. He urges agencies such as Maryland's Department of Business and Economic Development to start thinking about how to "recapture" factory jobs lost to China, now that China isn't as cheap as it once was. The idea is that some industries could be competitive making stuff in America now that China prices are going up sharply.

It’s time for state and local economic development agencies to start honing their import recapture strategies. By ‘import recapture strategy’, I mean the judicious use of loans and other aid to help rebuild and restart manufacturing production and jobs that were lost to foreign factories.*

Yes, I know that sounds weird after all the manufacturing jobs that have been lost. Anecdotally, the price differential between China and the U.S. was on the order of 35%. Given the price jumps in the pipeline, all of a sudden the cost of U.S. production might be in spitting distance for some industries.That’s especially true since domestic manufacturers have the advantage of being close and flexible.

I'm skeptical. China is not the last redoubt of cheap manufacturing. Producers will move to Vietnam, Cambodia or Indonesia. In a world where more than a billion people still live on $2 a day or less, it seems like there are plenty of other places to seek low-cost inputs (including but perhaps not confined to labor).

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We're hearing a lot about the evils of Chinese inflation. It's one of Mark Zandi's Four Worries about the U.S. economy. Of the four Robert Wasilewski says Chinese inflation is the biggest. This business columnist implied that Chinese inflation is part of an overall scenario of rising inflation, including for the U.S.

But let me play devil's advocate. There's another, positive side, to inflation in China and other developing nations. It's making their manufactured products less competitive on the world stage and moving to reduce trade deficits in the United States (check out Keith Bradsher's story in the NYT) and other developing nations. Chinese inflation is eroding China's low-cost advantage in the world economy. It's a ricochet effect from China's policy of depressing its currency. (That's poetic justice, because currency manipulation is China's attempt to keep its low-cost edge.)

In a developed world where policymakers are still obsessed about deflation, maybe a little inflation imported from China would be a good thing.

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Shanghai-based economist Andy Xie wrote this in August:

Inflation, not deflation, will dominate the global economy. The deflation scare causes the central banks in the developed economies to sustain a loose monetary policy. It will fuel inflation in emerging economies. Through trade, currency markets, and ultimately inflation expectations, inflation will hit developed economies.

Step No. 2 is now happening. No sign of Steps 3 etc. And it's hard to believe we'll see them anytime soon with so much excess economic capacity in developed countries. But Andy Xie is smart.

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As the NYT points out, the U.S. corporate establishment has on balance been supportive of the status quo in U.S.-Chinese relations. The steel companies complained about dumping, but Walmart and multinationals were quite happy with the cheap labor China provided and the huge potential of its market. Now, with continued intransigence by China with regard to Western access to its internal consumption market, corporate America is putting more pressure on Washington to put more pressure on China. NYT:

American multinational corporations, experts said, are hurt by Chinese regulations that openly favor Chinese companies over foreign ones for government contracts. These rules, which are intended to stimulate technological innovation in China, have the effect of cutting American and other non-Chinese companies out of many of the big contracts there.

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Today's column is about the factors that seem to point to a slowdown in extraordinary Chinese growth. The leadership wants the economy to continue expanding at an annual pace of 10 percent or so, but it will be increasingly challenging for the economy to accomplish that. Part of it is just the tyranny of arithmetic. As growth keeps compounding and per-capita incomes draw closer to the global mean, it's harder to keep up the pace. (Of course, however, much of China is still poor by world standards. Its per-capita GDP of $6,800 is a small fraction of the United States' $46,000, according to IMF figures.)

I didn't have room in the column to get into a Chinese slowdown's implications, which would be powerful and mixed. The immediate effect -- a slowing of the growth in living standards, of the rate at which people are rising from poverty -- would be negative. And if it destabilized the regime, or even if it made the leadership feel threatened, a Chinese "growth recession" (nobody is predicting the economy to actually shrink anytime soon; a big setback for China would be for growth to fall below 7 percent) could have dire global effects. You could expect to see tensions rise over Taiwan and other Beijing territorial claims, as the regime sought to distract attention from a disappointing economy. Any economic setback is unlikely to stop China from continuing to build up its military.

Some in Washington are worried about China's rise as a global competitor, but an economically struggling China might pose an even bigger threat. North Korea has one of the weakest, most miserable economies in the world, but that hasn't stopped -- indeed it has everything to do with -- it being a very dangerous global actor. The best outcome for China and Washington would be for China to let the renminbi rise to its natural value. That would level the playing field for international trade. But it would also raise China's standard of living versus the world, let the Chinese buy more from United States and other nations and set the stage for the rise of a consumer economy and the next stage of China's growth.

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One mark of economic ascendancy is the ability of a country's elite to move international art markets. The Chinese are succeeding by this measure, as by so many others. Just as the Japanese piled into impressionists and other European art in the 1980s, the Chinese have developed a taste for Picasso. Specifically, for the works, largely depreciated by critics, that Picasso turned out late in life. From Bloomberg:

Last week, Christie's and Sotheby's achieved similar results at their New York auction houses with Chinese collectors bidding aggressively on most lots. Christie's sold Picasso's Faune, Femme Nu et Mousquetaire, a raunchy drawing made in 1967, for $1.3 million—$500,000 more than its presale estimate—as well as the 1964 painting Le Peintre et Son Modèle, which met heightened expectations by fetching nearly $3 million. At Sotheby's, Picasso's Homme au Fanion (1969) brought in $5.4 million. "It's a very sound market and a very real market," says Giovanna Bertazzoni, the head of Modern and Impressionist art at Christie's London. "It's not a bubble."

Well, maybe not.

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Salon.com's Andrew Leonard has a great meditation on contradiction and duality in modern China, of which we have seen plenty. His metaphor is the site of the first big meeting of the Chinese communist party in Shanghai, which now is surrounded by a swank, mixed-use development patronized by the grand bourgeoisie that party leader Mao Zedong hated with passion and venom. Leonard:

A few hours ago, I stood at the address 76 Xingye Road, in front of the Shanghai building where the First Congress of the Chinese Communist Party met in July 1920. To my left loomed "Corporate Avenue" -- a complex of office towers erected by a Hong Kong-headquartered real estate developer that for the last 15 years has been relentlessly transforming the neighborhood around this hallowed ground into an entertainment-and-dining mecca now called Xintiandi. One of the poorest neighborhoods in Shanghai, the CFO of the developer's China-based subsidiary told us with pride, was now one of the city's most expensive to live in. 

Yet the Chinese people that Leonard, I and the other journalists talked to on our trip see little if any contradiction. Mao desired improvement for the working class, they say, and his heirs are spectacularly delivering it. Modern China's philosophy seems to be not Marxism but utilitarianism, which says that those actions are most moral which most increase happiness and prosperity for the most people. I doubt Marx would be happy, not least because he thought utilitarianism apostle Jeremy Bentham was a jerk. Nor, I suspect, is China's dynamic of thesis (communism), antithesis (capitalism) and synthesis (the state as market-oriented corporation) the kind of dialectic that Mao had in mind.

But as an argument success usually trumps all others. China has plenty of that.  

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China is the second-biggest economy in the world, it's moving at the speed of light, and we're only here for 10 days. So you look for little stories that freeze the blur. The Chinese nanny industry is one of them.

Mao Zedong believed that women had as much to contribute to the state as men, so he encouraged them to work and began providing day care in the 1950s. This continued for decades. Long Jing, a young Shanghainese women traveling with us, was raised in factory daycare from a very young age.

But state-sponsored day care has declined with the rise of of the private economy. Private corporations are far less likely to accommodate women raising a child. So along with all the other services developing here, the nanny and housekeeper industry is booming. Initially nannies tended to be country girls fresh from the farm. They demanded little in wages even though they were able to earn more as nannies than as field hands.

Perhaps initially families used relatives or acquaintances from their village as nannies. But eventually referral agencies sprang up, connecting the nanny-and-maid labor supply in the villages with demand in the cities. Then parents began to demand more. Rural grooming and housekeeping standards often weren't up to what clients desired. So the agencies began training nanny candidates in housekeeping, child care and so forth. Or maybe clients desired a nanny from a particular place or with a particular accent. Agencies did the legwork.

The arrival of foreigners -- Americans, Japanese, Europeans -- was a new opportunity. Foreigners on business expense acconts were willing to pay more for nannies, especially if they could speak the expat's language. Shortages developed, especially for well-qualified nannies. So China began importing nannies. Filipina nannies are reported to be very common even though they're illegal.

Ambitious nannies have started their own agencies. But like everybody else they have to deal with the Internet. Avoiding the fees agencies exact from both nannies and clients, families and would-be nannies find each other on the local equivalent of Craigslist.

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Some values are universal. Among them are love, patriotism and the occassional willingness to accept bribes for medical care referrals. Two weeks ago St. Joseph Medical Center settled allegations that it paid kickbacks to cardiologists to send patients its way.

Yesterday there was a similar story in China Daily. Doctors at a hospital in Hangzhou, where we're flying tomorrow, are alleged to have taken cash, gift cards and digital cameras in return for prescribing products made the by Hangzhou Tairui Medical Device Co. The story, which seems to be based on an anonymous Internet post, is quite thinly sourced. But China's efforts to crack down on doc kickbacks suggests that the practice is widespread.

And the same ingredients for potential medical bribes exist here as they do in America: Customers who rely on third parties not only to select the product but also to pay for it to; and a medical class whose income often depends as much on prescribing products and procedures as it does on keeping patients healthy.

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We're in Nanning, in Guangxi province in western China, near Vietnam. The place is basically the regional capital of a rural backwater -- and it's totally cranking. Cranes everywhere, mile after mile. Thirty-story apartment buildings being erected not one at a time but in batches of half a dozen or so. Yesterday we met with the deputy chief of the provincial economic development authority. That building was constructed in 1995, he told us, "so it's a little bit old." The capital investment in roads, rail and apartments -- this last driven by the perceived need to provide migrant housing and avoid urban shantytowns at all costs -- is breathtaking. (As mind-blowing as this is, Alison Bradley, who's taking us around on behalf of the China - United States Exchange Foundation, says the development here pales to what she's seen elsewhere in China.)

And yet, something is missing. Motorbikes clog the streets so badly that the government banned new registrations a few years ago. But there are few cars. Thousands of retail shops line the streets. But they're only a step up from kiosks and stalls -- one-room emporia of maybe 200 square feet in one- or three-story buildings and open to the street, with garish, five-foot high signs overhead and a counter in front.

We toured a big museum of ethnic minority culture. There are a dozen ethnic groups in Guangxi, each with its own language. The museum had beautiful costumes and fabrics and depictions of traditional housing and gorgeous rural landscapes. We loved the xiuqiu balls, traditional Guangxi symbols of love made of colorful panels of silk. We wanted to get some in the gift shop. But there was no gift shop.

No gift shop, not much of a tourist economy and a very undeveloped consumer economy. Everything is about state-driven capital investment and exports to developed nations and, increasingly, Vietnam, Cambodia and Laos. In the last five years wages have doubled at the truck plant we toured to the equivalent of $3,000 a year. But it's still $3,000 a year. The Chinese dream is for exports to continue rising, for incomes to keep doing the same thing and for families to start spending more of their money on consumer goods. Xiuqiu balls for sale at the museum would be a sign the plan is working.

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Every country is defensive in response to outside critics. Authoritarian countries are often more defensive than most. When you ask about dissidents and democracy here in China, you get pushback among the elites in a nation that values stability above everything else. Officials claim U.S. media exaggerates China as an economic and strategic threat. China would like "more balanced, objective reports on the other side," was a typical comment, made by Xie Feng, chief of the North American section at the Ministry of Foreign Affairs.

But China is pretty candid about two shortcomings: the environment and protection of patents and other intellectual property. Maybe the pollution is so obvious it can't be spun away. Yesterday, as we left Beijing to fly to Nanning, near Vietnam in the west, the haze was so thick you couldn't see more than a few hundred yards. But a thing's obviousness is not necessarily a disqualification for authoritarian regimes to deny it. (cf. Baghdad Bob.)

China's leaders genuinely realize that they need to clean the country up."Bluer skies, more forest, more grassland," is part of what China wants in the next decade, Xie says. Yesterday's China Daily had a grim article about totally unregulated mom-and-pop mines in the north that are surrounded by hundreds of acres of dead fields that result from tailings and other pollution.

Likewise leaders acknowledge their entrepreneurs are pirating intellectual property. "I admit there is much room for improvement in that regard," Xie said.

Words are not actions, but they're a start. China's pollution hurts its people and causes internal dissent. China can't rely forever on copying other people's products to generate the growth it so desires. If the nation places a premium on stability, it may understand that these are two of the most destabilizing threats it faces.

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The Democrats holding onto the House Senate raises the chances of hearing more trash talk aimed at China next year -- for currency manipulation, for impeding the entry of U.S. companies into China (this is more of a Republican complaint but Democrats chime in, too), for poor labor and environmental standards and for apparently inexhaustible supplies of cheap labor. Those sore spots won't be getting much better anytime soon, except for one. China's not as cheap as it used to be -- for labor, or for suppliers exporting to the United States and elsewhere. China isn't raising the value of the renminbi currency as much as Washington would like. That's one way Chinese prices could rise against the dollar.

But in each meeting we attend here in Beijing we hear about rising price inflation within China, some of it at alarming rates. That lowers the purchasing power of the Chinese, and it also makes Chinese goods more expensive for foreigners. The Chinese government is reluctant to admit it has an inflation problem, but even it concedes that prices are going up at an increasing rate. The government says maybe 3 percent for all of 2010, with the CPI hitting a 4 percent annual rate these days.

Nobody believes this. The government spun a huge stimulus package last year. The money supply has gone berserk. State-owned banks are lending like crazy. Chinese who live in Hong Kong, used to dirt-cheap bargains available on the mainland, say it costs them much more travel and consume there. The 20 million Chinese migrant workers who got laid off and went back to their villages in 2009 have returned to work. Minimum wages just went up in the provinces. And workers are demanding and getting big raises from employers. Migrant workers have been getting pay increases of about 10 percent a year since 2003,said Cai Fang, a labor economist at Renmin University. This year they're going up by 30 percent, he said. He claimed productivity is rising faster than wages, which would keep unit prices down, but that's hard to believe.

Really low-wage jobs are shifting from China to places such as Cambodia and Vietnam. And food inflation, always a potential cause of unrest in developing nations, is prompting griping at the markets and unease in the ministries. Patrick Chovanec, a professor at Tsinghua University in Beijing with ties to private equity investors, says food hit an annual inflation rate of 8 percent in September. Inflation is "a tiger in a cage," says Yu Yongding, an economist with the Chinese Academy of Social Sciences and a former member of the monetary policy committee of China's central bank. The cage door is open, he says. Observers are waiting to see if the tiger escapes. "Inflation is the No. 1 problem," he says. "Housewives feel there is very high inflation."

We met with an executive from a state-owned investment fund who thinks Chinese consumer inflation has hit a pace of 15 percent annually, which if sustained could substantially erode the country's cost competitiveness and trade surplus with the United States. The question is: What will the big-picture effect be in the U.S.? Short-term, higher Chinese prices could fuel U.S. inflation. But even if inflation gets a grip in China, Cambodia and Vietnam are willing and increasingly ready to be the new low-cost suppliers.

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Our group of journalists -- me, Slate's June Thomas, economics superblogger Megan McArdle, Salon.com's Andrew Leonard and National Public Radio's Uri Berliner -- had dinner in Beijing Monday night with Ambassador Chen Yonglong. Folks from the Chinese People's Institute of Foreign Affairs, an NGO, were also there.

Amb. Chen's account of his career -- helped by a dumb question by me -- traced the arc of China's progress.

He was trained as an economist during Mao's Cultural Revolution in the 1960s. One assumes that course didn't include Adam Smith and David Ricardo. By some perverse administrative logic he ended up not in the economics ministry but the foreign ministry, where he rose. An early job was that of courier, carrying the diplomatic pouch to and from embassies in more than 100 countries. Later he was China's ambassador to Jordan, then to Israel. He recently joined China's Committee on Climate Change, and he's also a vice president at the People's Institute think tank.

He was referring to his early days at the foreign ministry. "Were you a trade attache?" I asked, thinking that's how economists often start diplomatic careers.

All the Chinese as well as the alert Americans at the table thought that was hilarious. In the 1970s, of course, China had no trade, With anybody. Communist dogma held that autarky -- a self-sustaining economy -- was the way to go. Business dealings with foreign Capitalist Roaders were anathema. Now, two or three generations later, international trade is China's life blood, caffeine and intoxicant.

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A Chinese housing bubble is not like an American housing bubble. The American bubble has popped. The Chinese one hasn't. Yet. Americans bought houses. The Chinese in Beijing and Shanghai buy apartments. Americans bought with no money down. Many Chinese still pay cash with no mortgage. American real estate was lived-in during the bubble and became vacant afterward. Hyperappreciated Chinese real estate, on the other hand, is already vacant. Nobody ever lived there, at least to a large degree.

More than half the apartments in Beijing and Shanghai may be unoccupied, China Daily reported last summer, citing figures from Sina.com. In Hainan it may be as high as 70 percent. The titles are clean. The mortgages are paid on time, when they exist. But nobody's home. And the owners wouldn't think of renting, says Patrick Chovanec, associate professor at Tsinghua University in Beijing. They don't want to mar their precious assets with people walking on the floors and opening and closing the doors.

Apartments seem to play the same role in modern China that gold often does in India -- a place to invest and store your money. Wealth is cascading into Beijing. But you can't invest it in the S&P 500; currency and capital controls prevent investments abroad. You could put it in bank and earn 2 percent, but Chinese inflation is perhaps 6 percent or 8 percent. Who wants to lose money doing that? So the Chinese sock their savings away in a nice flat, and since nobody wants a used apartment they don't allow anyone in the place.

"These aren't for living in," says Prof. Chovanec, who met with our group of U.S.journalists at Tsinghua today. "They're a store of value."

Or apparent value, anyway. Just because there's no huge overhang of borrowed money doesn't mean the bottom might not fall out, Chovanec says. Chinese real estate has never crashed since the government allowed private ownership in the 1990s, so that means it can never happen, right? Trying to quash speculation, Chinese authorities try to identify vacant apartments by checking for unused electric and water meters, reports Beijing Today. But vacant-apartment owners are catching on, running the water and lights for a bit to simulate occupancy.

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The Chinese consumer is part of the subtext to U.S.-Chinese tension, demonstrated at last week's G20 summit. Washington wants China to let the renminbi currency as well as Chinese wages to appreciate. Such developments would make Chinese imports to America less competitive, and they would also give Chinese consumers more income to, well, consume. Thus China's enormous trade surplus would shrink as consumers bought more from abroad as well as from China's own factories. The global flow of funds might be a bit more balanced.

If China's consumer economy is slow in taking off, it's not for lack of trying by the advertisters and marketers. I spent 45 minutes on a stationary bike at our Beijing hotel gym after we arrived this afternoon, with a TV overhead. I surfed. Game shows. Men in military uniforms reading the news. Black & white movies from the 1950s with happy, singing peasants. And ads.Tons of ads for scotch, BMWs, electric shavers, Mercedes Benz, vacuum cleaners, cologne, gin, toasters etc. etc. The sales counter of the Chinese retail sector is open for business, and has been for some time.

What's taking longer to develop (this is a very relative term; China is growing so rapidly that nothing takes long by normal standards) is not just consumer incomes but consumer finance. As the annual McKinsey & Co.. Chinese consumer survey notes, middle-class Chinese are unlikely to have credit cards, let alone debt worth several months of income on them. Chinese still save a third of their incomes. In the United States we're trying to stay at 5 percent after having been around zero for several years. Chinese shop more often than Americans but buy relatively less on each trip, although that is changing, according to McKinsey. They, too, like to window shop. But they seem less likely to take the stuff in the window home on a whim.

Of course overborrowed, overspent American consumers just brought down the global economy, so perhaps one doesn't want the Chinese to mimic them too closely. But there is a long way to go before that happens.

Hancock is being sponsored, along with four other American journalists, by the China-United States Exchange Foundation on a 10-day tour of Chinese factories, ministries, universities and laboratories.

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