With promising signals beginning to appear in the economic data, and world equity markets up strongly from their March low, the air is full of talk about a recovery. Yet, if anyone thinks the economic upheaval that began with the emergence of the sub-prime mortgage crisis and the start of the credit crunch in the summer of 2007 is now over, he or she is dreaming. The reckoning has only just begun. That is not to say there are no positive signs. In the past few weeks they have been appearing at an accelerating rate, many of them from China. Most recently, the official manufacturers' purchasing managers' index - a key advance indicator of industrial output and economic growth - recorded its second month in expansionary territory above the 50-point mark (see the first chart below). With other leading indicators confirming the upward trend, economists have been scrambling to raise their forecasts for Chinese economic performance this year, and markets have spurted higher. But despite the encouraging signs, any hopes that the global economic turbulence is coming to an end look wildly premature. The great economic imbalances that were the root cause of the crisis in the first place have only just begun to correct. The process still has a long way to run, and it is likely to be painful, especially for China. Although the economic asymmetries that emerged over recent years have many facets, their most familiar side is the imbalance between the United States and China. Since the early 1990s, the US has consumed more goods than it has produced, importing the extra. The flip side of all that consumption is that Americans have saved little or nothing out of their incomes, and certainly not enough to fund US investment needs. As a result, the US has also had to import capital. On the other side of the Pacific, the opposite has prevailed. China has produced more than it has consumed, exporting the surplus goods, largely to the US. At the same time, low consumption means that China has saved far more of its income than it needs to fund domestic investment, even though investment rates have been sky-high. The surplus capital has been exported, mostly to the US. Economists have been warning for years that this imbalance is unsustainable, and now it is starting to correct. From nothing at all a year ago, Americans saved 4.2 per cent of their disposable income in March. As a result, consumption has fallen as a proportion of gross domestic product, and the US current account deficit has contracted, just as the economists said it would. But across the ocean in China, things are not following the script. To make its own adjustment, China has to narrow the gap between what it invests and what it saves. Most observers believe the best way to do this will be to reduce savings rates by consuming more domestically. Instead, Beijing has opted to pump up investment with heavy stimulus spending and a massive expansion in the growth of loans to local governments and state-owned companies. As a result, investment in fixed assets was up 28.8 per cent in March compared with the previous year, the biggest increase since 2006. This should certainly procure growth in the short term, as demonstrated by the latest pick-up in the purchasing managers' index. But it is not helping to rebalance the economy. The only way to do that is by persuading ordinary people to spend more. Unfortunately, that is not going to happen easily. As the second chart shows, ordinary people's incomes have not kept pace with China's startling economic growth over recent years, as wealth has been concentrated in the hands of the state and big corporations. Rebalancing will necessarily involve transferring some of that wealth to ordinary people by increasing their incomes, which will then permit them to spend more. Until that happens, the imbalances will persist, and any apparent recovery in the global economy can only be lacklustre at best.