Hyper-inflation unlikely in China in near future

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Last updated at: (Beijing Time) Sunday, November 23, 2003

Hyper-inflation unlikely in China in near future

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Chinese experts recently have expressed optimism over the country's macro-economic growth, saying it is within the normal range and China is unlikely to encounter hyper-inflation in next two or three years.

Zhang Hanya, former director of the investment department under the State Development and Reform Commission (SDRC), said China is experiencing an economic boom with rapid growth and low inflation.

Official statistics show the Consumer Price Index (CPI), the government's most closely watched inflation barometer, increased in the first nine months this year by 0.7 percent over the same period last year, and the growth is expected to reach 0.9 percent by the end of this year.

According to the statistics, though grain prices began to rise in August, retail prices dropped. The prices of industrial products, up by 2.4 percent in the third quarter, recovered from earlier drops.

Steel products fluctuated between 2,800 to 3,000 yuan per ton in recent months, unlike the straight-line rise from 1,700 to 4,100 yuan per ton between April 1992 and April 1993. Experts said the fluctuation occurred when more steel products flooded the market, which curbed the price hike.

With sufficient grain stocks, the government is also capable of controlling grain prices, Zhang Hanya said.

He predicted next year's CPI will remain between 2 to 3 percent, which indicates hyper-inflation is still unlikely.

He considered there will be no economic strain if the inflation rate is kept under 10 percent. "Inflation is only an economic signal and won't threaten society if farmers and workers don't stop work to supply enough products."

"Moderate inflation, in contrast, will encourage the activity of producers and enable them to make more profit," he said.

Li Deshui, director of the National Statistics Bureau (NSB), said China's current economic expansion is quite different from a decade ago, as market forces have been greatly enhanced in regulating resources allocation.

China increased monetary supply since July, and prices for basic consumption goods also rose due to the influence of soaring grain prices, which are two possible factors leading to inflation, Li said.

"But China's many processing industries, like steel, cement, textiles and machinery, have improved production capacities, which will intensify competition and pull down prices. With China's gradual fulfillment of commitments to the World Trade Organization, more cheap foreign products, including automobiles, refined oil and electronic products will flood in, which will also result in ageneral slump in prices," Li said.

Chinese economist Lin Yifu considered China does not need to worry about hyper-inflation, but should watch out for deflation caused by overheating investments.

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