In June the Chinese government lowered its 2012 GDP growth forecast to ‘just’ 7.5%. Few actually believe the economy is growing that fast. Within the investment and economic communities it is widely accepted that Chinese GDP statistics are at least partly falsified. The Chinese government itself has said as much in cables revealed by Wikileaks.

A good question for investment analysts and economists, then, is what is the true rate of Chinese GDP growth? It is a hard question to answer. I doubt the Chinese government itself knows—measuring so much data in a country of more than a billion still mostly-poor people is not a small feat.

But if you want to try to guess the growth rate anyway, a great place to start is with the prices of what China buys. Because more than 50% of China’s GDP consists of fixed investment—i.e. building stuff—Chinese businesses buy mammoth amounts of nearly every industrial commodity: iron ore, steel, copper, coal, cement, etc.

In many cases China is the largest and the marginal buyer of the commodities it consumes, so its buying appetite has great influence over the prices of those commodities. What’s more, some of these commodities—cement for example—are extremely expensive to store relative to their value, and they do not have futures markets. That makes them useless as vehicles for speculation. Imagine a big hedge fund wanting to make a billion dollar bet on the price of cement. Where would it store a billion dollars’ worth of cement? Yankee stadium?

So the prices of these commodities do a pretty good job of tracking actual day-to-day supply and demand from real end users. And that means they convey information about what those end users—in this case the Chinese—are up to.

Let’s start with iron ore. China needs a lot of steel to build all those empty skyscrapers, so it buys a LOT of iron ore. In fact China accounts for more than half of the world’s total iron ore consumption. How is iron ore doing these days?

Not so great. Over the last twelve months the price of iron has declined almost 30% even though iron ore supply is tightly controlled by a few multinational miners who try like hell to keep the price high. (For those who like to take the longer view, the chart below may be of even more interest).

So the price of iron ore is falling. That probably means China is buying less of it—but it could also mean that suppliers are supplying more of it. I always try to keep in mind that single indicators provide weak information because the true signal is invariably confounded by random noise. So it is probably worth looking at some other indicators.

How about metallurgical coal? Met coal is a high-quality coal used in the steel-making process.

Once again things do not look so great. Met coal prices have been falling without reprieve since June. But iron ore and met coal are both inputs into the steelmaking process, so it should not be surprising that they both show the same thing. How about a commodity that is more tied to broad industrial activity? How about thermal coal, which is burned to generate electricity? In recent decades the Chinese government has placed more emphasis on economic growth than on the environment, so not surprisingly China is the world’s largest consumer of coal, a cheap but very polluting power source.

Yet another ugly chart. Thermal coal has fallen more than 20% in just six months. But at least it has stopped falling. Why? Perhaps because now is summertime in China. This past week the temperature in Beijing was in the mid-90s. Multiply 20 million people by 95 degrees and the answer is an awful lot of power-sucking air conditioning. That level of power consumption creates a baseline for power demand, and thus coal demand.

But the thermal coal price has still fallen significantly in recent months. So the prices of iron ore, met coal, and thermal coal all suggest that a pretty significant slowdown is going on in China. Where else can we look for evidence of what’s going on in China? How about cement? By now you get the picture: China is building so much stuff that it consumes more cement per capita than any other large country in the world. But before we get to cement pricing, take a look at the chart below:

I find this chart interesting primarily because the parallel between China and Spain is so strong. Spain’s economy is—or was—extremely real estate-dependent, just as China’s is. But now that the real estate bubble in Spain has burst, the Spanish aren’t building anything, so they’re not using so much cement. And today it faces a potential banking collapse if the ECB does not come to its rescue.

What about the cement price? Unfortunately getting detailed cement prices is difficult because cement is very expensive to ship relative to its weight so it never gets shipped far, and that creates regional pricing pockets. So there is no single chart to show. But according to Global Cement Magazine, an industry trade rag, “the mean price of Cement across China has been steadily decreasing since the end of April”.

At this point I think it is fair to say that pretty much every major industrial commodity whose price is primarily determined by Chinese demand is heading downward at a steep rate. To rule out the possibility that the declines could be due to increasing supply rather decreasing demand, we should look for a relevant metric that is volume-based rather than price-based.

All those tons of cement and iron ore don’t move themselves, so how about rail freight miles? The chart below, which is courtesy of Zerohedge, shows total rail freight miles at the top, and the year-over-year change, in percentage points, at the bottom.

Chinese freight traffic volume is now in decline year-over-over, something that has happened only twice in the last 14 years. Rail freight volumes—the shipment of industrial inputs—are down 5% over last year, yet the heavily industrialized Chinese economy is growing 7.5%. This is an impressive feat and a clear victory for the central planners.

Finally, one last chart in case you haven’t already seen enough: the Chinese stock market. Chinese stock prices are now approaching their Global Financial Crisis lows.

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How fast is China’s GDP really growing? I don’t think anybody knows, inside of China or out. But based on everything presented above, GDP growth probably isn’t anywhere near 7.5%. I have trouble seeing how it can be growing at all (on an inflation-adjusted basis) at this point, but I would need more investigation and evidence to make that claim confidently.

As important as the actual growth rate is the fact that the slowdown does not seem to be easing. None of the metrics presented above, with the exception of the thermal coal price, shows a sign of stabilizing. But the trillion dollar question is whether all these charts depict the beginning of a collapse, or the nadir of a cycle that is about to reverse.

I don’t know the answer. The Chinese economy, as it is currently configured, is grotesquely disproportioned. It relies hugely on real estate that is backed by incredible amounts of debt (which will go bad when the bubble bursts), and low-value export manufacturing that operates on razor thin margins and is extremely sensitive to small changes in the value of the Yuan. The room for error is tiny, and if the growth stops the real estate debt will go bad and manufacturers, already struggling with reduced demand from Western economies, will go bankrupt left and right.

That state of affairs would mark an economic point of no return. But—and this is a big but—the people who run China are powerful in ways that can be hard for those of us accustomed to democracy to comprehend. And their power is predicated on economic growth, so they will go to great lengths to keep the economy from crumbling, almost no matter the cost to the average Chinese citizen. We should not be surprised to see increasingly confiscatory monetary policy in order to backstop expansionary fiscal policy and massive (but often unreported) bank loan losses. We should not be surprised to see increasingly censored news and data coming out of China in order to conceal how bad things are getting. We should not be surprised to see increasingly brutal policing in an effort to quell dissent before it erupts. People will most certainly be angry–tens of millions may lose their jobs, and many could see their savings vanish as a result of falling real estate prices and poorly-designed investment products.

If you are a Western investor who owns commodity-related companies, you may already be feeling the pain. But however great the monetary cost to your portfolio, the human cost of what’s to come in China could sadly be much greater.