The Reason Xi Is Traveling the World.

If you look behind the public swagger, Chinese President Xi Jinping has reasons for concern. The world could soon face a liquidity crisis. The U.S. trade deficit is shrinking fast. The rest of the world's trade balances, therefore, are being affected. On top of that, China appears to have no remedy for dealing with its real estate bubble.

In Japan, if the three-decades-old low-to-zero interest rate policy collapses, the economy could see not only a liquidity crisis but a financial crisis.

In the United States, the Federal Reserve with its aggressive tightening is likely to drive the economy into recession or close to it. The U.S. trade deficit is decreasing, creating a dollar shortage problem for the world. Throughout the world, central bankers, including those in China, are powerless to respond.

Meanwhile, the phenomenon that has benefited large parts of the world--particularly China--is the ability of the U.S. economy and the dollar to tolerate large trade imbalances. That phenomenon is fading away. At the same time, Chinese exports are dropping. The property bubble is in the process of collapse. Some make the case that the Chinese bubbles today are four times larger than the bubble that produced the collapse in Japan in the 1990s.

China is not only reaching a plateau, it may have begun a process of contraction. The...