More figures out of China indicate that factory production is falling quickly and unemployment is rising.

Over the weekend, China’s premier Wen said he saw some hopeful economic signs in his country toward the end of last year. Someone must have slipped him bad statistics.

According to MarketWatch, “Conditions in China’s manufacturing sector declined in January, marking the sixth straight month of falls, while the pace of layoffs jumped to the highest recorded in a four-year-old survey published by CLSA Asia-Pacific Markets.”

Whatever China’s central government says about the nation’s prospects, data indicate that the economy is moving into a recession. The sharp drop may have begun at the end of last summer, and it gives every appearance of gaining steam.

Most economists outside China are still support the notion that the world’s most populous nation will have 5% GDP growth this year. That would be down sharply from close to 7% in Q4 and well below the 10% per year the world has come to expect as China’s export machine has ramped up.

The question is how China could possibly avoid a recession? None of its trading partners are in good shape. Figures for imports in the developed nations fall every month. The other large consumer of Chinese production is its own middle class. The number from CLSA show that those citizens are being thrown out of work, perhaps at a record pace. China’s own Ministry of Agriculture has reported as many as 20 million people have left factory jobs and returned to rural areas. From the standpoint of purchasing power, these workers are effectively unemployed.

China is not going to hit 5% GDP growth in 2009. It will be lucky if it avoids an economic contraction.

Douglas A. McIntyre