There are several factors this argument omits. Firstly if the West got tough on carbon intensive imports that would apply to countries besides China. There is no point moving industry from China to Vietnam if the goods face the same carbon tariffs. Secondly China may not have as much good quality coal as presumed. Due to lack of rail Mongolian coal is trucked south in huge convoys so it is easier to import coal to southern ports. Within a decade several current suppliers will confine themselves to their domestic market. Countries with surplus coal like Australia and the US might see coal export to China as an 'own goal'.

Also there may be no economic rebound. As pointed out water is a limiting factor to which could be added credit restrictions, generational loss of consumer confidence and a predicted return to high oil prices. For these reasons I think China should go along with international carbon cutbacks. Incidentally I've seen a suggestion that out of 1.3 billion population some 0.3 bn enjoyed the economic miracle and 1.0 bn did not.

This article points to some of the enormous difficulties we face in any attempt to limit emissions globally, but does not mention them all. Another problem is that even if China were to accept or adopt any of the West's concerns over carbon there is real doubt over whether the central government has sufficient control over its own economy to make anything happen. After all, until recently the country had illegial coal mines - and might well still have - and the equivalent of its state governments were involved in overtly criminal behaviour.
But never mind, the point is that forcing any sort of carbon emissions limit on china or any other country in the developing world requires far more collective politcal will than has been shown to date.
The only real solution is to clean up emissions The trading schemes being proposed, and in operation, are a hopeless waste of time.

Any carbon diet strategy would be dependent upon clean coal:

"The vast majority of new power stations in China and India will be coal-fired; not "may be coal-fired"; will be. So developing carbon capture and storage technology is not optional, it is literally of the essence." --"Breaking the Climate Deadlock," Tony Blair, June 26, 2008

But, Vaclav Smil, an energy expert at the University of Manitoba, has estimated that capturing and burying just 10 percent of the carbon dioxide emitted over a year from coal-fire plants at current rates would require moving volumes of compressed carbon d ioxide greater than the total annual flow of oil worldwide -- a massive undertaking requiring decades and trillions of dollars. "Beware of the scale," he stressed."

"The alternative (to geoengineering) is the acceptance of a massive natural cull of humanity and a return to an Earth that freely regulates itself but in the hot state." --Dr James Lovelock, August 2008

China has one of the largest coal reserves in the world, and coal accounts for 67% of its primary energy use, compared with 24% for the world average. China is currently bringing two additional coal-fired power plants to the electric power grid every week. In a hypothetical scenario in which carbon intensity keeps pace with a GDP growth rate of 7%, by 2030, China would be emitting as much as the world as a whole is today (8 GtC/year) --Ning Zeng et al., Science, 8 February 2008

"I'm going to tell you something I probably shouldn't: we may not be able to stop global warming. We need to begin curbing global greenhouse emissions right now, but more than a decade after the signing of the Kyoto Protocol, the world has utterly failed to do so. Unless the geopolitics of global warming change soon, the Hail Mary pass of geoengineering might become our best shot." --Bryan Walsh, Time Magazine, 17 March 2008

The Walsh quote is spot on: Too little, too late.
I have always believed in the hard sci-fi view that Earth is only our cradle and we would have to learn to leave it some day.
Despite the calls of "too much to do down here" (as the intelligent dinosaurs probably heard before the Big One...) I thought we would make the investment some day.
Turns out we will have to learn to live on energy and rocks after all. Instead of doing it "up there" at a massive scale we will have to do it "down here" instead. Instead of massive engineering done by robots we will have massive culls dictated by politics and dodgy economics.
It is a shame that we cannot take more of the biosphere with us this way.
Domed city-states anyone?