No Typical Deflation in Chinese Economy

Home>>Business

Last updated at: (Beijing Time) Thursday, March 06, 2003

No Typical Deflation in Chinese Economy

DISCUSSION

CHINESE

SEND TO FRIEND

No typical deflation has ever occurred in China, although the prices have been operating at a low level, according to prominent Chinese economists attending the first session of the 10th National Committee of the Chinese People's Political Consultative Conference (CPPCC).

Price fall alone cannot be construed as "deflation", said Gui Zhiyong, member of the 10th CPPCC National Committee and Vice-Minister of State Economic and Trade Commission, during an interview with Xinhua.

"Only when price fall has led to economic recession or had concomitant economic recession, the economy can be said to have been plagued by deflation," he said, adding that prices in China have been fluctuating within a normal range and shown signs of rebounding.

Deflation in its real sense should bear the following three features: sustained dropping of the prices of commodities and labor; sustained dropping of money supply; occurrence of economic recession (negative GDP growth appears for two quarters), according to the economists.

Theoretically, it is deemed as stable or normal when the consumer price index (CPI) fluctuates between positive and negative one percent. That was the case for the 1997-2002 period, with that for 2002 dropping only 0.2 percent.

Official statistics from the National Bureau of Statistics have also testified to the fact. Concomitant with the falling prices, the amount of narrow money (M1) increased by 15 percent annually and the GDP grew 7-8 percent.

In addition, factored into the currend round of price decline are the downward adjustment of tariffs, the improvement of labor efficiency due to technical advancement and standardization of pricing for public good and services.

There have been worries that China's high-speed growth would not last as it is pulled by increased investment instead of increased productivity and that economic recession would be inevitable if investment in equipment far outgrows market demand, according to the "output gap" theory.

But CPPCC member Chen Qingtai refused to buy the view, saying that it does not fit the actual conditions of China. "It is true that for quite a long time, China's fixed asset investment had been outgrowing the economy, making it look like a kind of extensive growth. But such huge investment was sustained mainly by domestic savings instead of by foreign debt as in other Asian countries that had been plunged into a financial crisis.

Dong Fureng, one of China's most respectable economist, said that following the Asian financial crisis, the Chinese government promptly adopted the principle of expanding domestic demand by adopting a pro-active fiscal policy and a prudent monetary policy. That is the major reason behind China's fast economic growth against a negative global economic environment.

In addition, he said, deflation is a global problem. As the price influence of Chinese commodities in the world is limited, it is thus inconvincing to talk about China's influence on global deflation.

In fact, China's CPI began to go upward in January this year. (Xinhua News)

Questions?Comments? Click here

'Theory of China Exporting Deflation' not Conforms to Fact

China Not an Exporter of Deflation: BNP Paribas Peregrine

>> Full Coverage

Interview: Why Does China Start Lunar Exploration Program? ( 5 Messages)

China-ASEAN Economic Cooperation Upgraded ( 19 Messages)

New Type of Nuclear Reactor Put into Use in Beijing ( 3 Messages)

Will Russian Oil Pipeline Lead to China or Japan? ( 23 Messages)

China's GDP Hit 1.23 Trillion US Dollars in 2002: NBS ( 4 Messages)

UAE Appeal on Saddam's Fate Draws Mixed Reactions ( 3 Messages)