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)
