China has helped produce lower mortgage rates. China's influence in the U.S. bond market extends far beyond its own purchases of U.S. Treasuries and "agency paper" issued by Fannie Mae ( FNM) and the other government agencies that dominate the market for mortgage-backed securities. Price competition from Chinese manufacturers, who buy and sell in a yuan pegged to the U.S. dollar, kept the Japanese and other central banks on a Treasury-buying spree to keep the value of the yen, the South Korean won and other Asian currencies from climbing to the point that these countries lost export share to Chinese companies. In the 12 months that ended in April, foreign central banks bought $260 billion in U.S. Treasuries and agency paper, leaving the Federal Reserve's purchases of $33 billion trailing in the dust. It's hard to gauge the total effect of all that foreign buying on U.S. bond yields, but the buying has probably kept the yield on the U.S. 10-year Treasury note down by somewhere between a half and a whole percentage point. And we have all benefited because the rates on most U.S. mortgages are linked to the yield of the 10-year note. Of course, now that the Japanese look like they're temporarily out of the business of supporting the yen, the effect works in reverse. In the short run, it's another force putting downward pressure on Treasury prices -- and upward pressure on interest rates. In the long term, though, foreign buying of Treasuries will keep U.S. interest rates lower than they would be if the Treasury market had to depend on just U.S. buyers. Chinese competition has cut inflation in manufactured goods and brought more inflation in commodity prices. It's not just the lower costs that Ohio Art or Hewlett-Packard ( HPQ) get by moving production to China that have reduced inflation here in the U.S. Competition with cheaper foreign goods and lower-cost foreign factories has made it almost impossible for companies to raise prices on manufactured goods sold in the U.S. Even a modest price hike has been almost a guarantee that the company would lose market share.