Consumer prices in China are expected to fall significantly next
year while consumption may replace export and investment to become
a major driver of the country's economy, Deutsche Bank said.
In a report released yesterday, the bank maintains the forecast
of a modest slowing in the nation's gross domestic product to 10.4
percent in 2008 from 11.5 percent this year, according to its
December issue of Asia Economics Monthly.
"We expect CPI (consumer price index) inflation to fall visibly
to an average of 3.8 percent next year, down from the 6.5 percent
year on year in October and an average 4.6 percent in 2007."
The German bank made its projection based on several trends
highlighted recently by the National Development and Reform
Commission:
- Inflation has been mainly driven by food items and is
structural in nature, although international and cost factors also
played a role.
- This year's domestic wheat and rice output has grown and will
be sufficient to meet demand, and grain prices will be broadly
stable next year.
- Although corn output has fallen due to effective control on
corn processing and exports, corn prices should stabilize after May
next year.
- The ratio between pork price and grain price has risen sharply
to 9:1, much higher than the break-even ratio of 5.5:1, suggesting
that pork supply will improve significantly in the second half of
next year. The NDRC is now concerned that pork prices may fall too
much next year thus potentially hurting farmers.
- Given that grain prices are broadly stable, a significant rise
in food price inflation is unlikely.
- Stable prices of most manufacturing goods can be
maintained.
The bank forecasts that consumption growth is likely to surge on
rapid income expansion, rising wealth from investment in assets,
and progress in social sector reforms.
The A share market has surged nearly 100 percent since the
beginning of this year, implying an increase in wealth of about
five trillion yuan (US$666.7 billion) for individual investors.
(Shanghai Daily December 18, 2007)
