Persistent price falls will not hinder fast economic growth in the
nation, according to Chinese economists.
They said the decreases were the fruits of increased investment in
manufacturing, lower production costs brought by improved
technology and recent reductions in tariffs following China's
accession to the World Trade Organization (WTO).
Fan Gang, president of the State Council-affiliated National
Economic Research Institute, said modern technology has helped
improve national productivity and reduce production costs.
"I
believe current low prices mainly result from lower costs and it
will not interfere with China's high-speed growth," Fan told the
forum on China and the world's macroeconomics trend on
Saturday.
The economists said falls in China's consumer price index spanning
14 months did not mean the Chinese economy is suffering from
deflation.
Prices of consumer goods in December dropped by 0.2 percent from
the 2000 level. The fluctuation is within the 1 percent range that
is internationally recognized as signifying price stability.
Wang Tongsan, an economist with the Chinese Academy of Social
Sciences, said tariff cuts following China's entry to the WTO were
another reason for the drop in commodity prices.
Average tariffs fell from 15.3 percent in 2001 to 12 percent
nationally last year as a result of China's entry to the WTO.
In
addition, reforms of the former monopoly industries of power,
transportation and telecommunications have contributed to price
falls of commodities and services, Wang said.
Some economists said low consumer prices stemmed from speedy
investment growth since 1992, which resulted in the over-supply of
many commodities in the market.
Economists also dismissed the argument portraying China as a source
of global deflation as nonsensical.
Some of China's exports may exert downward pressure on competing
products on the international market, but the impact on overall
prices is insignificant because of their relatively small
proportion of global trade, they said.
In
addition, price falls sparked by Chinese exports are good news for
overseas consumers and do not hurt demand, which is the current key
to global economic growth, they said.
Fan Gang dismissed as "total nonsense" the argument that China's
low-priced exports were the cause of a general decline in prices
worldwide.
This argument was alluded to in an analytical report by Stephen
Roach, Morgan Stanley's chief economist, released in October. Roach
said in the report - entitled "China Factor" - that as the world
listed towards stagnation and deflation, China, which was making
robust economic progress, could be singled out as a source of
global deflation.
It
was seized upon by sections of the media who trumped up the idea
that China was indeed a source of global deflation. This forced
Roach himself to clarify what he really meant.
Roach said in a separate commentary that Chinese imports account
for less than 2 percent of Japanese gross domestic product (GDP)
and it is therefore unreasonable to accuse China of sparking
Japan's own self-created deflation.
He
said the US case was similar. Chinese imports represent little more
than 1 percent of GDP of the United States. "Like Japan, that's
hardly a big enough slice of the US economy to impact the aggregate
price level."
Economist Lin Yifu with Peking University said the pressure exerted
by Chinese exports on overall prices in the global market "seems to
be very small." This is because Chinese exports account for just 5
percent of global exports with the share of Chinese exports
competing with goods from other countries even smaller, Lin
said.
(China Daily February 17, 2003)