What is gong on in China?

I have seen a lot of media saying China will save the world.  They are already stimulating their economy and it is getting ready to launch again.  I always like to look at the charts to see if the opinions are based on reality or not.  Lets start with the Shanghai index.

This chart looks a lot like a post bubble stock market.  The index is right at the lows for the last three years.  Stocks usually bottom 3-4 months before the economy does.  I don't think the Chinese economy is going to be lighting it up on the upside for at least the next three months. 

What does the economic data say?  Here is the latest PMI data.

I guess if I stand on my head when looking at the charts things don't look so bad.  We can see new orders suck and now backlogs are starting to contract.  That would explain the employment chart not looking so good.  When you don't have new orders and you catch up on the back log, what do you do next except layoff people.

If that is not bad enough check out this chart from a NY Times article.  You can read the article here http://www.nytimes.com/interactive/2012/08/23/business/global/china-producing-more-than-it-sells.html?ref=global.

Inventories are rising at the fastest rate since the survey started in 2004.  I recently read that Caterpillar cut production of heavy equipment in China.  I am not an economists, but if inventories are building up fast, wouldn't that kind of indicate that new orders are going to continue to be weak in the near future.

Looking at the stock market and the economic data leads me to conclude that things are more likely to get somewhat worse before they get better.  What does that mean for the rest of the world since China has become such a big economy.  They used to say that when the U.S. sneezes the rest of the world catches a cold.  Meaning that economic weakness in the U.S. was felt all around the world.  Is China now big enough to have that same affect?

Bob