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No typical deflation has ever occurred in China, although the
prices have been operating at a low level, according to prominent
Chinese economists attending the first session of the 10th National
Committee of the Chinese People's Political Consultative Conference
(CPPCC).
Price fall alone cannot be construed as "deflation", said Gui
Zhiyong, member of the 10th CPPCC National Committee and Vice
Minister of State Economic and Trade Commission, during an
interview with Xinhua.
"Only when price fall has led to economic recession or had
concomitant economic recession, the economy can be said to have
been plagued by deflation," he said, adding that prices in China
have been fluctuating within a normal range and shown signs of
rebounding.
Deflation in its real sense should bear the following three
features: sustained dropping of the prices of commodities and
labor; sustained dropping of money supply; occurrence of economic
recession (negative GDP growth appears for two quarters), according
to the economists.
Theoretically, it is deemed as stable or normal when the consumer
price index (CPI) fluctuates between positive and negative one
percent. That was the case for the 1997-2002 period, with that for
2002 dropping only 0.2 percent.
Official statistics from the National Bureau of Statistics have
also testified to the fact. Concomitant with the falling prices,
the amount of narrow money (M1) increased by 15 percent annually
and the GDP grew 7-8 percent.
In
addition, factored into the current round of price decline are the
downward adjustment of tariffs, the improvement of labor efficiency
due to technical advancement and standardization of pricing for
public good and services.
There have been worries that China's high-speed growth would not
last as it is pulled by increased investment instead of increased
productivity and that economic recession would be inevitable if
investment in equipment far outgrows market demand, according to
the "output gap" theory.
But CPPCC member Chen Qingtai refused to buy the view, saying that
it does not fit the actual conditions of China. "It is true that
for quite a long time, China's fixed asset investment had been
outgrowing the economy, making it look like a kind of extensive
growth. But such huge investment was sustained mainly by domestic
savings instead of by foreign debt as in other Asian countries that
had been plunged into a financial crisis.
Dong Fureng, one of China's most respectable economist, said that
following the Asian financial crisis, the Chinese government
promptly adopted the principle of expanding domestic demand by
adopting a pro-active fiscal policy and a prudent monetary policy.
That is the major reason behind China's fast economic growth
against a negative global economic environment.
In
addition, he said, deflation is a global problem. As the price
influence of Chinese commodities in the world is limited, it is
thus unconvincing to talk about China's influence on global
deflation.
In
fact, China's CPI began to go upward in January this year.
(Xinhua News Agency March 6, 2003)
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