The Palestinian town of Bethlehem is once again overflowing this Christmas with an influx of Christian tourists.

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This time of year is economically vital for local traders who sell their goods to the visiting pilgrims, but this year many are being undercut by cheap imports.

The streets around Manger Square and the Church of the Nativity - the site where Jesus was said to be born - are bustling with tourists and local traders selling everything from wooden nativity scenes, statues of Jesus and Mary and Christmas tree decorations, all traditionally handmade by local Palestinian craftsmen.

But Bethlehem's shopkeepers are facing competition from Chinese imports. To most tourists they look like the real thing but they sell for a fraction of the price.

"The painful reality is that these products are competing with traditional and historical Palestinian products," says Samir Hazboun from the Bethlehem Chamber of Commerce.

"They don't reflect the true Christmas message."

Take for example the baby Jesus doll, which is hugely popular among Italian Catholics. For years this doll has been handmade by a single Palestinian family and can sell for anything up to a $100.

But now Chinese factories have begun mass producing an almost identical product that costs a mere $30.

"We try and impress on tourists that their first choice should be local products," says store owner Maher Canawati.

"So we can promote local products and the local economy but some tourists that come don't have enough money to pay for the Palestinian product."

Worst hit are Bethlehem's local wood carvers, who work with wood from the famous olive trees, which dot the Palestinian landscape.

Maher Zacharia, from a local olive wood factory, says this year many of them are feeling the pinch as Chinese imports of statues and rosary beads, undercut their market.

"This jewellery box, for example, our craftsman can make this by hand and sell it for $8 or $9 but the Chinese are turning them out by machine for $1. It's not the same quality," he said.

"In Bethlehem we make our stuff from real olive wood but in China they use what we call redwood. It's not the real thing or even metal that they pour into a machine."

But despite the Chinese imports, Bethlehem is buzzing on Christmas eve and tourist numbers are up on last year.