BEIJING -- The Hang Seng Index dipped 1% Friday to close at 16,136, while the Shanghai Composite Index managed a gain of 0.6% to 1665.

On Thursday, China shares traded down in New York. Focus Media gave up 0.3% to $62.30 despite an upbeat report from Lehman. 51Job ( JOBS - Get Report) lost 5% to $19.40 and Ctrip ( CTRP - Get Report) was down 4.9% to $51.22.

The real action in Asia was in Tokyo, where the central bank ended six years of an effective zero interest rate policy, increasing the overnight lending rate to 25 basis points. The decision was hailed as a sign that Japan had finally broken out of deflation mode.

The action occurs just as market watchers are starting to wonder about the potential for China to transform from a global deflationary force to a potentially damaging source of inflation, as its turbo-charged economic growth only continues to accelerate.

That idea drew more sustenance Friday from a Shenzhen Securities Times newspaper article quoting anonymous insiders who predicted second-quarter GDP growth would hit 10.9%.

Growth of that magnitude would mark a substantial rise from already ultra-high first-quarter GDP growth of 10.3%. The same article said year-on-year growth in fixed asset investment hit a stunning 35% in June. The official numbers are expected to be released next Tuesday.

"We think China could be on the verge of transforming from being a global deflation exporter into an inflation exporter," wrote Citigroup's head of China strategy Lan Xue in a note published last week.

A shift to inflation mode would challenge long-held perceptions about China's role in the world economy.

Amid an export boom over the past decade, China has been widely viewed as a country that has transplanted its own low-cost manufactured goods to other nations. Cheap electronics, textiles and other widgets made in China are frequently cited as one factor that's helped keep a lid on price increases in the U.S.

But a wealth of recent data showing continued white-hot economic growth has left some economists wondering about China's vulnerability to inflation on the home front.

Though it's perhaps early to gauge, government measures to slow the economy seem to be having little effect. These include a 27-basis-point interest rate hike to 5.85% in April and an increase in the reserve requirement ratio of 0.5 percentage points to 8% in June.

Inflation in China, which would push up wages in manufacturing and other areas, would be bound to spill over to goods and services sold in the U.S.

To be sure, the Friday article in the Shenzhen paper said China's consumer price index grew 1.5% in June, up from 1.4% in May. If accurate, that's still relatively low. But it may not reflect reality. Most economists believe China's consumer price index basket understates true inflation pressures.

Xue argues that an unrepresentative CPI, combined with government controls on utilities and fuel, have created a damaging "illusion" of low inflation. That in turn encourages continued excess in investment and consumption.

In the meantime, Xue points to a swathe of inflationary pressures that bear watching. Gradual price liberalization of utilities is likely to leave consumers picking up more of the tab for water, electricity and transportation costs. Already, prices for education and health care have been picking up as Chinese citizens must pay for services the state used to cover.

Food prices are also on an upswing, with grain and meat prices up nearly 12% and almost 15% in April, respectively.

That trend seems likely to continue, given the government's commitment to helping boost incomes for agricultural areas in the hinterland. Beijing has made it a goal to narrow the income gap between cities and rural areas to stave off unrest in the countryside.

As another pressure on food prices, China is losing farmland as more areas are claimed for industrialization.

Over time, if inflation were in fact to gain traction and rise to the 4% to 5% range, Xue said he thinks the government would likely need to take deflationary measures by allowing the yuan to appreciate.

"If China was to go through a meaningful yuan appreciation phase, we see a good possibility of it becoming a global inflation exporter considering that it would be difficult to replace China as the main manufacturing base for the world within the next five to 10 years," he wrote.

Xue isn't the only one to point out how regional inflation could have a spillover effect. "One important element in global inflation is the rise of Asian export prices," wrote Morgan Stanley economist Andy Xie in a Friday note. "These were on the decline for 10 years, and were a significant force in keeping global inflation down."

He added: "Whether the current reversal is due to rising prices of raw materials or rising wages is not that important. What is important is that it is rising. Its reversal exemplifies what is happening to global inflation."