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Rising Chinese Prices Generate Worldwide Inflation Concerns

By Keith Bradsher

The New York Times -- GUANGZHOU, China

As managers of businesses across China opened booths here on Thursday at the nation’s biggest trade fair, the common refrain was that prices of everything from rice to steel were rising sharply, and that prices of exports to the United States, Europe and elsewhere would have to follow.

The prices for orders placed now will not show up in most U.S. indexes for months, when goods are actually shipped. But as prices begin to rise in the United States, concerns are growing that China will become an exporter of inflation. Even though its goods account for a small percentage of total U.S. purchases, China has played an oversize role in worldwide prices, with low labor costs that allow it to set prices in many industries.

A socket wrench manufacturer said his high-quality models had risen in price by 10 percent in the last six months and his lesser-quality models by as much as 50 percent. An exporter of automobile exhaust manifolds, brake drums and other parts had raised prices by 10 percent in several increments since December.

The prices of steel and other materials are major culprits. Another is energy costs. A motorcycle manufacturer in east-central China said he has had to close a factory for three days each week because of electricity blackouts, forcing a 4 percent increase in prices, with more planned.

Food and other necessities are putting pressure on wages. A maker of key-cutting machines in an inland province of central China said it was paying workers 10 percent to 20 percent more to help cover sharp increases in rice prices, and had raised export prices for the machines by 25 to 30 percent.

Price increases in raw materials and other business costs in China, a government spokesman said, will probably spill over soon to consumer prices, in China and abroad.

“There is a time lag, but it can’t be too long, and there is pressure for price rises,” said Zheng Jingping, the spokesman for the National Bureau of Statistics, at a news conference in Beijing on Thursday. “If this goes on for a long time, it will cause problems.”

Exports from China to the United States last year represented just 1.2 percent of the value of all goods and services produced within the United States. But China has been the low-cost provider in many areas. As its prices rise, many other low-income and middle-income countries exporting to the United States, from Eastern Europe to Mexico and Central and South America, will find it easier to raise prices as well.

China’s efforts to keep the economy from overheating and igniting inflation have been unfruitful so far. Using a term that Zheng and other Chinese officials have conspicuously avoided, the state-run New China News Agency on Thursday quoted Morgan Stanley’s China economist, Andy Xie, describing the Chinese economy as “a bubble.”

That comment came as Beijing announced that the economy had grown at a rapid 9.7 percent in the first quarter, faster than expected. The bureau of statistics also reported that consumer prices were exactly 3 percent higher in March than a year earlier.

Xie of Morgan Stanley said in a telephone interview that the true increase in consumer prices could be 7 or 8 percent. “The State Council has said they want to keep inflation below 3 percent, so they have to report an increase of 3 percent,” he said, referring to China’s cabinet.

In the United States, the Labor Department reported on Wednesday that prices climbed 0.5 percent in March, with gasoline and clothing leading the way, for an annualized rate of 6 percent if sustained. Though prices of housing and health care have been heading higher for some time, increases in other areas stoked concerns in the financial markets that inflation could rear its head in coming months.

Within China, ferocious competition has kept prices from rising for big-ticket items like cars, household appliances and mobile phones. Giant companies like Wal-Mart, moreover, have some ability to force suppliers to hold down price increases. The main buyers at the Guangzhou Trade Fair are wholesalers who supply small and medium-size retailers.