As China’s inflation soars, world fears knock-on effects

SHANGHAI, Feb 24, 2008 (AFP) – As China’s factory floors feel the pressure from spiralling costs, there is growing nervousness in the rest of the world that the Asian giant’s next big export could be inflation. From air-conditioned US shopping malls to bustling African street markets and remote Asian villages, shoppers have become accustomed over recent years to the vast array of ultra-cheap Chinese goods on offer.

China’s trade surplus last year reached 262.2 billion dollars, a more than 10-fold rise from 2003.

But now a confluence of factors, led by soaring domestic inflation that hit an 11-year high of 7.1 percent in January, is ramping up the costs of doing business in China, with potential knock-on effects for the rest of the world.

As China’s currency has strengthened sharply against the dollar, the government has scrapped export tax rebates, while more stringent labour laws and even the ice and snow storms in southern and central China have further driven up costs.

“China’s inflation is having a domino effect on worldwide inflation, especially in the United States,” Li Huiyong, an analyst from Shanghai-based SYWG Research and Consulting, told AFP.

“In the past, (outside) inflatio