China curbs inflation with eye on preventing deflation: economist

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Last updated at: (Beijing Time) Wednesday, March 03, 2004

China curbs inflation with eye on preventing deflation: economist

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A noted Chinese economist said Wednesday in Beijing that deflation might return to China in next two or three years because of overcapacity, unless the country succeeds in cooling down the excessive investment in some economic sectors.

Lin Yifu, a member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC) who was to attend the second plenary session of the 10th CPPCC National Committee as of Wednesday afternoon, said that China recorded excessive investment in iron and steel and cement sectors owing to a growing demand from automobile and housing sectors in recent years.

The fast economic growth rate of 9.1 percent China posted last year was propelled mainly by rapid increase in investment, which focused merely on a few sectors including real estate, automobile, cement and iron and steel, said Lin, director of the China economic research center of prestigious Beijing University in the Chinese capital.

"The fast growth certainly cannot sustain for long," predicted the economist.

Excessive investment, he explained, will lead to surplus production capacity after market demands for motor vehicle and housing decrease, and a significant amount of bank loans to these sectors will then be turned into non-performing loans, and deflation might incur subsequently.

He went on to say that China is still being shadowed by deflation as commodity retailing prices index was negative last year despite 1.2 percent growth in its consumer price index, which was attributed chiefly to price hikes in agricultural and fuel products.

Various manufacturing sectors are, nevertheless, still being troubled by excessive production capacity, and relative deficient market demand, Lin said.

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