China positioned to unleash global deflation

He estimated that China's production is running as much as 50 per cent below capacity, as many industries that have been expanding rapidly are now being hit by slowing demand both domestically and abroad. Based on his estimates, China alone represents 7 per cent of the global supply/demand gap.

"We believe that once Chinese companies start to fully factor in a 2009 recession in the global economy in terms of significant shipment and selling-price cuts, widespread global deflation will be inevitable," he said.