China's economy is facing a crisis unlike any it has seen since opening up more than four decades ago. Over a million restaurants have closed, offices are emptier than during the pandemic, and property sales are down sharply. Duty-free sales in Hainan Island plunged 30% in the first seven months of this year. Summer box office revenue is down 44%. It's hard to see how China can be growing at the official 5% pace.

No matter how fast it's growing, China may not have sufficient output to service its debt. As a result, China is reliving 2008, perhaps in slow motion but 2008 nonetheless. Beijing overstimulated the economy then and made the country overly dependent on government spending and too much debt.

China claims its policies are "pragmatic," but that's hard to believe. Almost everyone says China must focus on consumer spending now, but the regime is geared to depressing consumer sentiment through low deposit interest rates and the household registration system preventing rural Chinese from earning higher wages in cities.

Xi Jinping is continuing to build industrial capacity even though factories produce far more than Chinese can consume. The phrase "doom loop" is becoming popular as China's only way out is to continue exporting to a world that can't absorb its products.

Xi is pleasing core Party constituencies, helping state banks and building war capacity by bolstering manufacturing. No real reform means near-zero chance of avoiding financial crisis. President Biden called China a "ticking time-bomb" last year.

So what about the U.S. Treasury's recent agreement with China? In one sense it looks routine - just early warning if China gets into crisis and economies are linked, as experts say. But others focus on the symbolism of bailout preparations at a time when the world is looking to America for leadership. Whatever Treasury is doing, America needs to quickly reassess relations with China. The U.S. should not provide a lifeline to this adversary or underwrite the enemy.

Is Washington Preparing to Bail Out a Struggling China?

Actions