reserves are vital to prevent domestic inflation and to keep the currency competitive, its not a war chest China can fall back on. China's progress is amazing, but there are some basic facts that get overlooked. The economy is still about as large as Britain or Italy. Nobody would expect either of those countries to singlehandedly pull the economy up, even in good times. China has a very weak base of domestic companies... nothing to match S. Korea or Japan - even Taiwan has a more powerful multinational sector. There is no reason to believe China won't catch up technologically, but it is decades behind, despite much (failed) effort. Excellent article. One small point: the stat on the closure of the shoe factories in the Pearl river area is not correct. There were approximately 6,000 in the region of which about 2,200 have closed down. So it's worth than you think. As far as I can make out the Chinese have been very far sighted to date. A huge percentage of the cash bubble - real american Dollars - ended up in China. A good deal got used building the factories and equipment needed to supply us. And a good deal got saved - in believe in excess of $2000,000,000,000. And China can now spend that - they are not the dodgy paper that our smart backroom financiers invented. So a good part of the real cash ended up in Chinese hands - they were a good deal smarter than