Vicious circle of China's economic slowdown

Julian Darley of the Post Carbon Institute writes about the effect of the economic slowdown in China.
[T]he fact that the US meltdown has now flowed into China is potentially disastrous for this most populous nation, but as its exports shrink and its factories shut, the meltdown is starting to flow back to America again, making an ugly situation even worse.

This vicious cycle is playing out in interconnected ways. Reduced Chinese exports to the US mean that the Chinese have less foreign currency to lend back to America, which further exacerbates the credit crisis and tends to tighten the money supply, making it more difficult for Americans to buy Chinese exports (or anything else).

The solution (for the US, anyway), says Darley: "rebuilding of the American and British manufacturing economies (less so the European), along with the supply chains to feed it and the return of the knowledge and skills to recreate it and run it." The China Syndrome Bites Back