China should care about inflation and deflation
(chinadaily.com.cn )
Updated: 2004-03-21 10:12

China should not ignore deflation while preventing the risk of inflation in 2004 as the current rising Consumer Price Index (CPI) is unsustainable, Yao Jingyuan, chief economist with the National Bureau of Statistics （NBS ), said in Beijing Saturday.

The higher CPI in the previous two months, which stood at 3.2 per cent - the biggest in nearly seven years, increased worries for both government officials and economists who thought the country's economy might overheat.

Supply still exceeds demand overall in China's market, in which, despite a rising food price, the price of industrial products declines and the price of service remains stable, Yao said when addressing a forum on China's balanced development.

The grain price rose in the fourth quarter of 2003 mainly because of a grain shortage in the market, Yao said. China's grain production has been decreasing since 1998 due to a price drop then, and the situation became more serious last year due to floods and droughts.

But the price rise of grain would not last long, for both the government and the market price encourage the farmers to plant more grain this year, he said.

China's urban fixed investment during the January-February period soared by 53 per cent on a year-on-year basis, which compares to 26.7 per cent recorded last year.

But over-investment was found in the steel, cement, aluminium as well as real estate and auto sectors as banks lent aggressively to tap the growth momentum.

Restrained by consumption, the price increase of raw materials like steel would not transmit to end products smoothly either, he said, taking the declining price of cars as an example.

Yao also mentioned the factors restricting inflation in China in 2004, including the shift of China's economic development mode from speed-oriented to a more balanced one, the slow growth of the residents' income and the large unemployed population, the increasingly free competition in China's market, and the general declining trend of the world CPI.

People's Bank of China's (PBOC) Governor Zhou Xiaochuan said earlier the government should be alert to possible inflation， but Zhou said the central bank chose not to raise the interest rate this month, because inflation was still mild。

Story contributed by Xinhua

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