Threat of deflation to weaken further

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Last updated at: (Beijing Time) Monday, December 08, 2003

Threat of deflation to weaken further

The deflationary pressure on the Chinese economy will continue to ease next year, with the consumer price index (CPI) expected to grow by up to 2 per cent, economists predict.

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The deflationary pressure on the Chinese economy will continue to ease next year, with the consumer price index (CPI) expected to grow by up to 2 per cent, economists predict.

Qi Jingmei, a senior economist with the State Information Centre, said the country's CPI - which grew a year-on-year 0.8 per cent during the first 10 months - will rise further next year.

The nation's economy is expected to grow by about 8.5 per cent in 2003.

"(Unforeseen events) will play an active role in the CPI growth," Qi said.

The country's consumer goods market, expected to grow 10 per cent next year or 1 percentage point higher compared with 2003, will have a direct impact on the CPI's rise, she said.

The increased money supply since the beginning of the year and the improved economic efficiency of companies are also beneficial for the CPI's outlook.

Since mid-October, China has witnessed rapid rises in the prices of its farm products.

Wheat rose an average of up to 80 yuan (US$9.6) per ton in major production areas between October 16 and October 19. The price for edible oil rose by as much as 86 per cent in some areas.

And price rises in grain, due to a reduction in production after an adjustment of the national grain structure and natural disasters such as flooding and droughts, will continue to have a huge impact on next year's CPI.

The government's possible move to adjust the prices for water, electricity and railway transportation, as well as the recovery of the world economy, will also push the overall consumer prices higher next year, Qi said.

However, a new round of inflation will not occur, she said.

Zhang Liqun, a senior researcher with the State Council's Development Research Centre, agreed, saying increasing supply will restrict the consumer price from increasing too much.

"Compared with 1993-95 when the country experienced inflation, the country's supply capacity is strong enough to meet the demand of market expansion," Zhang said.

Inflation in the 1990s was mainly caused by a lack of basic products resulting from a weak agricultural and industrial base, the researcher said.

At that time, the country was in short supply of food, raw materials and electricity, and prices rose rapidly.

Since the mid-1990's, the country's economy has moved past the supply bottleneck.

An investigation by the Ministry of Commerce on the demand and supply situation of the country's 600 major products suggests none are being undersupplied.

"More importantly, the foundation for supply growth has improved," Zhang said.

The country is capable of providing sufficient funds, labour and technology to increase its supply capacity, he said.

Yuan Gangming, a senior economist with the Chinese Academy of Social Sciences, said the government is willing to accept a CPI rise of 2 to 3 per cent every year, because it is regarded as helpful.

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