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China's economy may fall into deflation
www.chinanews.cn 2005-08-01 09:47:25
(Source: Xinhua)
July 31 - At the second China economic observation forum, some economists
predict that China's economy may fall into a deflation characterized by
persistent consumer price decrease.
Lin Yifu, Director of China Center for Economic Research (CCER) of
Beijing University, said at the forum held quarterly by CCER that China
is expected to see deflation caused by overcapacity in the latter half of
2005.
Wang Jian, Deputy Secretary General for the Economic Research Institute
under State Development and Reform Commission, said that decreasing
growth of Consumer Price Index (CPI), dropping enterprise profits, as
well as losses in downstream industries areall signals that China's
economy has taken a cooling trend.
According to Wang, China's economy has reached the middle phase of the
highly-growth cycle driven by heavy industry investment since 2003. So
the investment is expected to fall in 2006 despite a continuing rapid
growth, he said.
As for the consuming sector, because this year's good harvest may result
in somewhat decrease of farm produce prices, Chinese farmers, accounting
for China's largest population, is expected to see their net income
growth of this year lower than that in last year, which will limit the
expansion of the domestic demand to a large extent, said Wang.
On the other hand, the lower expectation of this year's economic growth
in Japan, the European Union and the United Statesfor such factors as
soaring oil price will also lead to the decrease of China's export
expectation, he said.
As a result, with this cycle of investment tide draws to a close in 2007,
most new capacity will be put into production and it is inevitable to see
over-supply and price decrease then, said Wang.
China's economy has been in the alert zone of deflation, said Yuan
Gangming, research fellow of the Center for China in the World Economy of
Qinghua University. Professor Song Guoqing of CCER has the same worries.
Through data analysis, Song demonstrated that the 9.5 percent growth of
China's GDP in the first half of this year was driven by the growth of
favorable trade balance to a large extent as the real growth of domestic
demand is only 3.5 percent.
So there is possibility of weak demand and so deflation in certain period
of time, said Song. But he predict the deflation will not last long.
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