China Should Concern Deflation

Deflation, rather than inflation, should be China's principal policy concern, according to a United Nations report released in Beijing Monday.

Consumer prices are estimated to have fallen by 1.4 percent in 1999 after a fall of 0.8 percent in 1998, said the report on the Economic and Social Survey of Asia and the Pacific 2000 launched by the UN Economic and Social Commission for Asia and the Pacific (ESCAP).

In China deflation is a manifestation of weak consumer confidence occasioned by business uncertainty and associated job insecurity. Households have reacted to this by increasing savings, the report noted.

Prices are expected to stop declining in 2000 with the increase in oil and other commodity prices. Whether this counters the high propensity to save of Chinese households remains to be seen, the report noted.

The report said that consumer expenditure is still weak in China, and the situation needs to change soon if fiscal deficits are to become a sustainable burden.



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