The Beijing government's decision to pump $586 billion into new infrastructure investment appeared like manna from Keynesian heaven, a promise that China would continue to buy oil and steel and cement and keep world markets ticking along.

It will be a tall order. For all its headlong economic growth over the last three decades, China's GDP is just $3 trillion, about one-fifth the size of the U.S. or European economies. A country with only 5 percent of global GDP will have trouble hauling the rest of the planet out of recession. And there are three alarming reasons to question just how far and how long China will be able to bear this burden.

The first came from the official Xinhua news agency, which reported last week that the country's leading bio-environment security team had reported, after a three-year survey, that more than a third of China's land is suffering serious erosion that is putting its crops and water supply at risk. At the current rate of loss of arable land, harvests in China's northeastern breadbasket were expected to fall 40 percent in 50 years. Soil erosion since 2000 has cost China $29 billion.

"China has a more dire situation than India, Japan, the United States, Australia and many other countries suffering from soil erosion," Xinhua reported, adding that the country was losing close to 5 billion tons of topsoil each year.

That may not be an immediate problem, but the crisis in trade credit is urgent. The lifeblood of the global economy, the international trade system, is drying up. It is becoming increasingly expensive and difficult to obtain letters of credit or the other forms of credit that finance the world's annual $13.6 trillion in trade.

Banks in China are reluctant to lend Chinese firms the money to import Western goods and raw materials, for fear that the importer might go bust. So in the absence of a guaranteed letter of credit, the exporters cannot get Western banks to finance the shipment.

"There's all kinds of stuff stacked up on docks right now that can't be shipped because people can't get letters of credit," Bill Gary, president of Commodity Information Systems in Oklahoma City, reported last month. "The problem is not demand, and it's not supply because we have plenty of supply. It's finding anyone who can come up with the credit to buy."

This is hurting emerging markets like Brazil, China and India particularly hard, says Pascal Lamy, head of the World Trade Organization, who says, "Trade finance is being offered at 300 basis points above the London Interbank Offered Rate, and even at this high price, it has been difficult for developing countries to obtain." Lamy has organized crisis meetings of banks with the WTO and International Monetary Fund to find ways to keep trade finance moving.

"Banks' refusal to offer letters of credit has resulted in very few fresh cargoes reaching the market, which is adding to the (ship-)owners' woes," says a report from Denmark's Maersk shipping group.

One of the main trade financing banks, HSBC, reports that the cost of guaranteeing a letter of credit has doubled, which helps explain the crisis in the shipping industry that has seen the charter cost of a 170,000-ton Capesize bulk carrier collapse from $233,988 in June to less than $5,000 this month, a fall of 98 percent.

"It's like standing on a beach watching a tsunami, knowing that it's coming," said Scott Stevenson, manager of the International Finance Corp.'s Global Trade Finance Program. (IFC is the private finance arm of the World Bank.)

World trade until this year had been growing at 7 percent to 10 percent annually but is now slowing sharply and may even be negative next year as the global recession spreads. One result has been the closure this year of 65,000 factories in China, mostly owned by Hong Kong, Taiwan and Korea. More than half of China's toy factories have shut.

And China has further troubles. Last week the official Beijing media reported that some 2,000 people rioted in Longnan, in northwest China's Gansu province, over a government plan to redevelop the city center in a way that threatened to make many people homeless. They burned cars, attacked a local Communist Party office, injuring 60 officials, and fought police with rocks and bottles, axes and iron bars.

Minxin Pei of the Carnegie Endowment in Washington, a leading U.S.-based analyst of China's bumpy path to modernization, estimates that riots in China are running at an average of 10 per day. China's official press has reported on dozens of demonstrations in recent weeks, including a two-day strike by disgruntled taxi drivers in the southwestern Chinese city of Chongqing and the torching of a police car in the recession-hit boomtown of Shenzhen. In June, 30,000 people demonstrated in the southwestern province of Guizhou, setting fire to cars and the local Communist Party building following rumors that officials had tried to cover up the death of a teenage girl.

"I don't think we're even close to seeing the real impact of the global financial crisis on Chinese society. I'd be surprised if the government wasn't very concerned about the increasing level of social unrest all over China," comments Joshua Rosenzweig, a Hong Kong manager of research at the Dui Hua Foundation, a human rights group.

If the world is counting on China to haul it out of recession, it may be relying on a weak reed.

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