Trade credit insurer: China can be a stabilizing force for inflation

Trade credit insurer: China can be a stabilizing force for inflation    Analysis from global trade credit insurer Euler Hermes ACI suggests that China may be the cause of and solution for inflationary pressures in the global economy, the company said Thursday.
   According to a recent report by Euler Hermes, China's economic growth makes it of exceptional importance to the global market, but analysts question whether it will be the source of new inflation throughout the world via increased commodity prices. The report states that the upward inflationary pressure applies only to the upstream side of industry. On the downstream side, China — in its own factories — is producing the very antidote to primary inflation.
   'China is transforming the commodities, using very cheap labor, and exporting modestly priced manufactured goods — all within the framework of an increasingly open world trading system,' said Euler Hermes Country Risk Manager David Atkinson in a statement. 'Through this, China is creating sharp competition everywhere in a growing number of sectors, thus exerting deflationary pressures on the prices of consumer goods.'
   Meanwhile, economic analysis from Euler Hermes suggests that indicators for China remain mixed, with upside risk on domestic demand and downside on net exports, with the latter expected to be dominant throughout 2006, according to information published in the latest Euler Hermes Economic Outlook.
   Taken as a whole, Euler Hermes projects that China's impact on world inflation will be only slightly negative this year; the forecast for 2007-2008 suggests deflationary pressure as commodities prices moderate under the impact of both global economic slowdown and increased capacities. Despite China's relaxations of exchange controls and forecasts of lower growth, bilateral trade tensions with the United States and the European Union will persist.
   'Competitive pressure from the export of Chinese goods should continue, as long as the nation's wages do not accelerate substantially and the yuan is not substantially revalued — neither of which seems imminent,' Atkinson said.