Based on the foregoing, factory production will decrease to a large extent. That means that many factory workers will be unemployed - this could lead to social stability issues. Urbanites should be more worried about whether construction workers are being paid though.

The $700 billion question is: To what extent will these economic events affect China’s middle classes? Are they somewhat insulated from the woes of the factory owners and workers?

While it is true that China is somewhat protected from market shocks, let’s not forget that it essentially faces the same problem as most of Asia in that its growth is export-led. Devonshire completely glosses over this fact, exaggerating the extent to which China is a consumption-driven economy. Sure, consumerism is growing in leaps and bounds, but the actual growth generated from domestic sales pales in comparison to that generated from exports. The balance of payments problem clearly supports this fact. Consider that a behemoth like Wal-Mart exclusively sources in China. If Americans are forced to wean themselves from their addiction to cheap consumer goods, things could get scary for China, too, in a hurry. (This fear is largely what drove the markets down in Japan, for example, except that Japan’s wares — electronics, cars, etc. — are a step up on the value chain.) There is no way the (nascent) demand in emerging markets could make up for a loss of this scale.

Lastly, I think it is a mistake to forget about China’s structural problems, which are real, and not likely to be resolved anytime soon. I was never a disciple of Gordon Chang’s, even when his work was more relevant than it is now, but on the other hand, many of the ills that existed a decade ago are alive and well today. To their credit, China’s present leaders are not in denial about these challenges; but will they be successful in resolving them?

Viewing the world economy as a zero-sum game (America loses, China wins) is, I think, naive to say the least.

You also need to look at the declining margins in the manufacturing sector which indicate that a small bump up in the oil price, combined with a global economic downtown and fewer exports could tip a lot of factories over the edge resulting in a Chinese recession.

It’s hard to say what is going to happen as this crisis goes on, but it certainly doesn’t seem like betting on the Chinese economy in the short term is a sure bet. In the medium and long term BRIC is definitely where the growth of the world is headed, but short term China’s role a the world’s factory may just end up creating more volatility and a steeper downturn.