Rising renminbi, not inflation, holds key

China's struggle with rising prices is reverberating around the world. Domestic inflation is the highest in nearly three years. Wages are increasing at a double-digit annual pace. It is no wonder that many are asking whether the era of China as a low-cost producer for the world is at an end.

The thought makes some nervous. Cheap imports from China have helped keep price pressures low in many countries. But higher wages and rising export prices in China may actually benefit its trading partners and would arguably leave the country better off as well. Continued rapid wage increases would help shift more of China's income into the pockets of its workers.

This, in turn, would support the development of a more sustainable, consumption-oriented model of economic growth. The United States and Europe would see their trade deficits with China shrink as Chinese goods became less competitive and as their exports to China picked up, providing a boost to employment.