China has excess capacity since this capacity was built (and is still being built, in delay) based on a demand that corresponds to the illusory levels of consumption of the past 20 years. The levels of consumption we have seen were inflated due to massive unregulated access to credit, so obviously anything built in relation to those high levels of consumption are inflated as well. China' economy as a whole is therefore inflated.
What this should lead to after the economies that fueled it deflate is major deflation, not inflation, since it means excess capacity and excess inventory due to falling demand.
People might have seen China as safe recently, because like a handful of other countries it rode the recession without too many hurdles. But you have to understand how this was possible. Most countries that managed to do this did so because China did not deflate. That means Canada, Australia, and others were kept afloat mainly thanks to China and a few other countries in similar circumstances. And why was China and a handful of others continue to exercise strong demand for raw materials? Because of stock market inflation by the US Federal Reserve.
So it's easy to see how this will play out:
1- US, an inflated economy supported by excessive credit, falls.
2- Feds intervene to support the stock market.
3- This allows China and a handful of others to continue to exercise strong demand since it brings confidence back to investors.
4- This keeps natural resources-strong countries like Canada, Australia, etc., afloat.
5- All of the above gives the impression that the Chinese economy is riding out the recession.
That's where we were until now, and maybe for a very short while still.
But since #2 is pretty much almost out of options, the markets can't stay inflated, and this means we'll see a lot of money flow out of China. Investments in China fall, hence its demand for natural resources fall too. Canada, Australia, etc., enter their own recessions, finally. Deflation hits China massively.
This is IMO 100% certain to happen, unless something drastic occurs, like really drastic.