Analysts: Evidence Emerges of End to Deflation Trend

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Last updated at: (Beijing Time) Saturday, April 12, 2003

Analysts: Evidence Emerges of End to Deflation Trend

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The latest official statistics show that China's consumer price index (CPI) finally reversed its downward trend of over a year to a 0.3 percent growth in the first two months of this year, and in 36 major cities, the CPI recorded an even higher growth of 0.5 percent over the same period last year.

Analysts here held that various economic indices for the first quarter provided evidence that the trend of deflation obsessing China's economic operation might be over soon.

Xie Ping, director of the central bank's research bureau, said Friday that major economic indices for the first three months indicated that the national economic condition is quite good.

These indices show that the growth of the gross domestic product (GDP) was well over last year's eight percent, the CPI has reversed its declining trend, total loans increased 800 billion yuan (about 97 billion US dollars), or 500 billion yuan more than the same period last year, and total deposits rose by 800 billion yuan, or 300 billion yuan more than the same period last year.

Xie held that these positive statistics can be seen as evidence that the trend of deflation is being reined in.

Dr. Cong Ming from the State Council's research institute said that the price of production materials has been rising for a long time and in the coming months, with the tight supply of energy and the expanding scale of construction, the prices of energy and investment products will continue to rise.

In addition, Cong said the fast increase of money supply will also support price increases. These factors are gradually removing the impact of the deflation trend on the Chinese economy.

A report also published Friday by the Macro-Economic Research Institute said that industry, investment and export all featured high growth in the first quarter, indicating that the internal growth mechanism of the Chinese economy is taking shape, and the problem of insufficient effective demand for the short term has been considerably eased up.

Official statistics show that in the first quarter, China's foreign trade displayed strong growth, as the export of machinery and electronics products, which account for half of China's total exports, increased 42.1 percent in the first two months, 20 percentage points higher than the same period last year and as the export of new and high-tech products increased 51.8 percent, 22 percentage points higher. At the same time, imports of motor vehicles, crude oil and other products also increased sharply.

Industrial output has maintained strong growth for 14 months ina row, and in the first two months of this year, the industrial added value increased 17.5 percent over the same period last year, a record high since 1996. Industrial enterprises realized an aggregate profit of 98 billion yuan, increasing 1.2 times over the same period last year.

At the same time, corporate investment has risen sharply since the beginning of this year. In the first two months the proportion of such investment in the country's total investment increased 2.6percentage points.

The report held that based on various macro-economic indices, the GDP for the first quarter is expected to exceed nine percent, that for the first half of this year is likely to be over eight percent, and the figure for the whole year will probably be able to reach eight percent.

Analysts cautioned that an inefficient economic structure and system continue to be the major factors hampering economic development, but that the current good macro-economic environment has provided a good opportunity to solve these problems.

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