China’s coming collapse

It became clear last week that China has probably not dodged the financial crisis at all, after Beijing quietly agreed to bail out local government to the tune of $463 billion.

Adjusted for the size of its economy, that rescue package is one-and-a-half times bigger than the Tarp bailout. That is particularly worrying, according to Dylan Grice, a global strategist at Societe Generale. “If we calibrate the magnitude of the economic crisis with the size of the bail-out, one-and-a-half Tarps implies a financial crisis one-and-a-half times the order of magnitude of 2008.”

The bail-out is aimed at cleaning up the vast pile bad loans made to local...