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In recent months, there has been a noticeable slowdown in production at China’s factories, which could have significant implications for the US economy. Researchers warn that if policymakers in China continue to prioritize investments in manufacturing, this could lead to an increase in inflation in the US.

One factor contributing to this shift towards manufacturing is a recent change in credit allocation. With bank lending moving away from the property sector and towards manufacturing, there has been a notable increase in new “green loans” as China’s clean energy sector grows. It is estimated that new manufacturing lending will make up a significant portion of total lending in the near future.

If these investments are successful and credit growth in China rises to 12% over the next two years, it could have a significant impact on prices in the US. The increased demand from a manufacturing boom in China would lead to higher costs for producers, which would eventually be passed on to consumers. This scenario could result in a sustained increase in inflation over the next two years.

However, it’s important to note that while conventional wisdom suggests that a manufacturing-led expansion in China would be disinflationary for the US, researchers caution that increased Chinese production will put pressure on global commodity markets and the manufacturing supply chain. As such, any potential inflationary pressures must be carefully considered and monitored by policymakers on both sides of the Pacific.

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