ORLANDO, Florida, Nov 17 (Reuters) - As policymakers in

the United States fret about getting inflation back down to

target, they may inadvertently get a helping hand from an

unlikely source.

The U.S.'s main economic rival China is struggling to slay

the specter of deflation. It's a domestic battle officials in

Beijing are nowhere near winning, despite some glimmers of hope

in recent official data.

China's annual consumer inflation was marginally positive in

October, but producer prices fell year on year for the 37th

consecutive month.

What's more, fixed asset investment last month plunged 1.8%

- excluding the pandemic shutdown, the biggest fall since

comparable records began 30 years ago - and the 10-year bond

yield is stuck at a lowly 1.8%. Neither points to an economy on

the verge of a reflationary expansion.

Domestic disinflation has been a feature of the world's

second-largest economy for the better part of three years. These

pressures have become entrenched, most notably in housing. But

many other industries, including autos and green technologies,

have also been blighted by overcapacity, intense competition

and margin-wrecking price cuts.

So much so, Beijing has responded with an 'anti-involution'

campaign to get companies and local authorities to stop the rot,

reverse course, and generate sustainable inflation.

But there are doubts around Beijing's commitment to this.

Many economists say the steer from the ruling Communist Party's

five-year planning meeting, or 'plenum', last month shows that

authorities continue to prioritize preserving manufacturing

strength over boosting domestic consumption.

With domestic demand still so sluggish, Chinese firms are

responding with a familiar tactic: selling abroad, even if it

means cutting prices to maintain market share. Exports are

soaring, and China is flooding some of its key trading partners

with cheap goods.

Brad Setser, senior fellow at the Council on Foreign

Relations in Washington, says China's surplus in manufactured

goods easily exceeds $2 trillion. That's around 10.5% of the

country's GDP, and more than 2% of world GDP, "a surplus that

far exceeds the combined surpluses of Germany and Japan at their

peaks."

Importantly, China is increasingly exporting to other Asian

markets. Torsten Slok, chief economist at Apollo Global

Management, says Chinese exports to Asia this year are up $150

billion, double the $75 billion drop off in exports to the U.S.

So, despite the ongoing trade war, the world is still awash

with Chinese goods.

CHINA'S NEW EXPORT BOOM

But this surge is different from China's previous export

boom.

Back in the early 2000s, China was the factory to the world,

flooding the global economy with cheap goods from T-shirts to

TVs. The deflationary supply shock was strong, and consumers in

the U.S., Europe and other large markets took full advantage.

Today, China is much further up the production value chain,

and its competitors are no longer low-cost emerging economies,

but advanced manufacturing nations like Japan and Germany.

China now makes and sells autos, electric vehicles, solar

panels and other high-quality goods. As CFR's Setser notes,

China currently exports well over 6 million cars, about a tenth

of the global auto market outside of China, and these exports

are expected to reach 8 million next year. No wonder Germany and

Japan are nervous.

"China is doubling down on its export led growth model. The

difference is now we're talking about more capital and

intermediary goods," says Innes McFee, chief global economist at

Oxford Economics.

DISINFLATION NATION

Will this new supply shock from China be enough to help cap

or even push down global prices? Perhaps.

McFee's colleagues at Oxford Economics estimate that a broad

10% fall in Chinese export prices would push down producer

prices in the U.S. by 0.1-0.2%, and by around 0.6% in Southeast

Asia. Chinese domestic industry disinflation of 10% would

increase those hits to 0.3% and 1.6%, respectively, they

estimate.

That's a meaningful impact.

China's latest domestic signals suggest disinflation in the

country could be a force for some time.

While this weak price environment may continue to worry

policymakers in Beijing, it could, at the margins, offer some

comfort to those in Washington.

(The opinions expressed here are those of the author, a

columnist for Reuters)

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