China's price rebound expected to continueThe slight rebound in China's price index at the beginning of the year is a signal that the market is steadily regaining its vitality.Thanks to the pro-active financial policy of the government, China's domestic demand is rising and the extended decline in prices of both capital goods and consumer goods has come to an end. The price level of capital goods in January increased 0.1 percent over last December, a growth in 46 months. In February, the consumer price index climbed up 0.7 percent from a year earlier to stop the drop in prices over the past 22 months. Most people tend to believe that the decline of price index is good news for consumers. But long-term decline of the price index is very harmful to China's economy and will eventually cause negative effects. It will also directly affect the profits of enterprises, leaving a decrease in worker's income and a rising number of laid-off workers. At the same time, the government will not have enough financial revenue to support its social security system. The decline in the prices of farm products in the past two years has greatly slowed down the growth of peasant's income and the chain effect has extended to the industrial sector. Many industrial enterprises have high debt ratio. Some economists pointed out that the slight rise of China's price index is still unstable, attributing it to seasonal factors and price rises in food and some services. Therefore the consumer price index might still fluctuate in the near future. However, analysts believe the negative growth in China's price index will come to an end within this year as it has steadily improved from -2.2 percent last April to -0.2 percent in January this year. Restructuring of enterprises in traditional industries has a positive impact on the rise of the price index, and China's economy has been growing steadily this year. While the world economy is recovering from the Asian financial crisis, China's exports are expected to increase dramatically. All this will guarantee the healthy price rebound in China and support sustainable economic growth, economists said. |
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