Signs are growing over the possible plunge of the Chinese economy into deflation and this has already raised alarms for foreign central banks. 

Bankers – that are already increasingly worried about the impacts of falling Chinese prices and a weaker yuan – are warning that China's surprise devaluation of the country’s national currency last month had left them concerned about the risk of further falls in the value of the yuan.  

They say Beijing may decide export deflation around the rest of the world if it wants to depreciate the yuan.  That is why they say they will be looking closely at China, Reuters reported. 

The deflation threat was underlined by data showing that Chinese manufacturers cut prices at their fastest rate in six years, with the producer price index (PPI) down 5.9 percent in August from a year earlier, though consumer prices are rising for now.

Analysts say falling Chinese factory gate prices coupled with a weaker yuan mean the price of exports from China will fall sharply, feeding downward price pressures into their economies.

They say attempts by Chinese policymakers to reassure global markets that the yuan will remain stable and China's economic growth will be stable are not enough. 

Economists believe China's surprise currency devaluation of nearly 2 percent in mid-August will have little impact on inflation in the near term, with sharply lower commodity prices likely to be the main drag.

Since the devaluation, China has scrambled to stabilize the yuan as markets bet it may fall further, running down its foreign exchange reserves by a record amount in August to support the currency. Markets still believe it could fall further though, with the offshore yuan rate trading at a 1.3 percent discount to the managed onshore rate on Wednesday, the Reuters report added.

Chinese Premier Li Keqiang, for the second day running, used a speech to tell business leaders and investors on Wednesday that China does not want a currency war and that the slowdown in its growth rate will be modest. The economy grew 7.3 percent last year.

The economic signs are gloomy. After Li spoke, the China Association of Automobile Manufacturers said auto sales in China in the first eight months of the year were unchanged from a year earlier, raising the specter of the market's first contraction since foreign carmakers started to focus on China over 25 years ago.