Are Chinese exports now a source of inflation? Input costs in China are clearly rising. Manufacturing wages grew at an average rate of 14 per cent last year. The cost of raw materials and intermediate goods is increasing and the government is liberalising utility and fuel prices. This leaves exporters with a choice: accept lower margins or raise prices.

There is evidence of both. In the electronics sector, for example, between 2000 and 2005, pre-tax margins halved to 3.5 per cent. Export data offer some confirmation of anecdotal evidence that Chinese manufacturers have raised prices this year. Mervyn King, the governor of the Bank of England, last month noted upward pressure on export prices, based on the prices of Chinese goods imported into Hong Kong.