What China thinks

China sees this as a US crisis. The Government mouthpiece's English language website:
Deputy Governor of the People's Bank of China Yi Gang called for international cooperation here on Saturday to restore global financial stability.
[...]
While the advanced economies have slowed significantly since the U.S. sub-prime crisis, the emerging market economies have maintained robust growth but the deteriorating external environment is putting the resilience of their macroeconomic policies to the test, he said.

(their image branding for the crisis)

His other comments on inflation were all over the show - expressing the uncertainty of how deep the recession will be and lack of information at this point:

"It is imperative that the major advanced economies coordinate rapid implementation of bailout packages to avoid deflation and facilitate the global recovery," said Yi.
"However, we should be aware that the injection of liquidity from these emergency measures could be a potential source of inflation in the medium and long term," the deputy governor said.

I suspect he's only worried about an inflationary outcome because of China's US dollar holdings. On that note he made an oblique reference to the exchange rate situation:

In line with their status, Yi said, the major reserve currency issuing countries should shoulder the responsibility for preventing further spillovers and minimizing shocks to other economies -- especially to the emerging markets.

The Chinese currency is effectively pegged to the US dollar - so when the US dollar goes moves so does the Yuan, which makes Chinese exports less competitive when it rises and that may threaten China's phenomenal growth. With that growth rides the hopes and material aspirations of one in five humans.

I think a US dollar rapid depreciation is very much on the cards, but it may all depend on China's calculations. The Chinese position is critical to the US. The money says China will not flush the toilet on them. They are massive stakeholders in America. They say it is America's problem - well they own that problem too, and if they really are as big a creditor of the US as we are lead to believe then they are to blame for funding this imploding bubble.

US$609 billion - that's how much Foreign exchange reserves China had at the end of 2004. The People's Bank of China don't seem to have the data for the following 4 years. Not a disclosure rich environment. Who knows what the real Chinese position is?