The thing that is scary about this, to me, is that the world economy is already pretty badly screwed up, and yet it's obvious that there is a risk of a major bubble bursting mess in China at the same time. I mean, we can hope that that would have some positive effects (people moving spending into areas that are more in the way of consumption in China, capital flowing out of China instead of just in, changes in relative currency values)... but I'm not sure that I believe any of that.
Yeah, I agree with you, particularly since all three of those potential positive effects are currently blocked by Chinese government policy.
Changes in relative currency values are slowed to a crawl by People's Bank of China's limits on the daily change in exchange rate between the Chinese yuan and the US dollar.
Capital flowing out of China is limited by controls.
Reallocation of capital is limited by bank--and thus, government, since in China the government owns them--lending policy which disproportionately targets infrastructure rather than consumption.
It's always possible the Chinese government will change, of course, but they feel they have good reasons for their positions. And right now that's the way it stands.