China can learn from Japan in dealing with deflation

The headquarters of the People's Bank of China in Beijing. [Photo by Shi Yan/China Daily]

BEIJING - China today and Japan in the 1980s share some similarities and China should look at how Japan dealt with deflation, banking giant HSBC said in a report.

Although China today is very different from Japan in the 1980s, there are lessons to be learned regarding how to avoid the deflation trap, how to implement restructuring policies and maintain expansionary fiscal policy, it said.

"The most important lesson from Japan is that policymakers should act decisively to prevent deflation," the report claimed.

China is facing challenges. The first priority should be to prevent deflation from taking hold, it said.

Having already adopted some of Japan's lessons, China must acknowledge that there is more work to be done. In the short term, more aggressive policy easing is needed, it concluded.

China's May consumer inflation slipped to four-month low and producer prices dropped for a 39th-straight month, signaling weak demand and raising the possibility of the central bank rolling out more targeted easing measures in the months ahead.

The consumer price index (CPI), the major gauge of inflation, rose 1.2 percent in May from a year earlier, down from April's increase of 1.5 percent, according to the National Bureau of Statistics.

Declining prices at the production end continues, and the producer price index (PPI) slid 4.6 percent year on year in May, the 39th-straight month of decline, official data showed.