China's economy continues to thrive compared to others around the globe.  The growth rate for the third quarter was near 9%.  Great returns for 2009, and the near future looks even brighter to most economists and investors.  But at Fortune/CNNMoney.com, Bill Powell writes of some concerns over China's escalating debt.  According to Powell, the Chinese government has issued massive loans to boost infrastructure, manufacturing, and real estate.  The loans total $1.27 trillion, "up 136% from the same period last year."

According to a recent analysis by Monaco-based hedge fund Pivot Capital Management, China's total lending reached 140% of GDP at midyear. That kind of lending makes China an "outlier" compared with other BRIC (Brazil, Russia, India, and China) countries -- and is already well beyond the levels that "have led to sharp and brief credit crises in the past," the Pivot Capital report contends.

Moreover, an increasing number of Chinese loans are being funneled into projects unlikely to generate an attractive economic return. From 2000 to 2008 it took just $1.50 in new credit to generate $1 of GDP growth. Now that ratio is 7 to 1. (In the U.S., just before the financial crisis hit, the ratio was only 4 to 1.)

That's because the loans are creating huge amounts of manufacturing capacity -- which is unneeded in the bears' view. China's spare capacity in the cement industry, for example, equals the total annual consumption in the U.S., Japan, and India combined.

So where will the growth come from? China's export markets are tapped out. Its domestic consumption, stalled at around a third of GDP, hasn't yet started to rise significantly. Additional manufacturing investment would be crazy, leading arguably to a global deflationary bust of epic proportions.

Read the full article here.