The rate was slightly lower than the first two months, the bureau added.

During the first quarter, manufacturing prices of the mainland dropped 4.1 per cent compared with a year ago.

The drop in prices was mainly because of the drop in international oil prices, said Qiu Xiaohua, deputy-director of the bureau.

"The global slowdown has been having an impact on China," Qiu said.

The global slowdown not only led to shrinking exports for China but also pushed down the prices of Chinese-made products through imports, he said.

The oil price on the Chinese market dropped 24 per cent in March compared with a year ago, because of the lower prices on the international market.

The manufacturing price for gasoline declined 25.1 per cent year-on-year in March, and that for diesel dropped 14.6 per cent.

Niu Li, a senior economist with the State Information Centre, said the price drop will eventually lead to a drop in the consumer price index, the policy makers' key inflation gauge.

The fact the majority of products on the Chinese market suffered from an oversupply also increased the possibility of deflation.

An investigation by relative government departments found that more than 80 per cent of the Chinese-made products are oversupplied.

"This situation cannot change much in the short term, because the country has yet to create new products and new areas for consumption and investment," Niu said.

Presently, policy factors still play an important role in expanding domestic demand, he said.

Fixed asset investment greatly depends upon government injections and, in particular, treasury bonds, he said.

Consumers could, theoretically, help pick up demand by continuing to spend, but consumption will become an uncertain contributor in the months ahead because Chinese consumers have much more worries, such as pensions, medical care and children's education, he said.

The vast rural population, which has a stronger desire for consumption, does not have enough money because of the slow income growth during the past years.

Despite the difficulties, Qiu said the Chinese economy will continue to develop at a fast pace.

The economy will grow at least 7 per cent in the second quarter, he estimated.

(China Daily April 27, 2002)