Chinese Economy Unlikely to See Deflation

Chinese Economy Unlikely to See Deflation

China's economy is unlikely to experience deflation, while GDP growth is expected to stay above 8 percent in 2009, a researcher from a key government think-tank said in remarks published on Wednesday.

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CNBC.com

China is not displaying the economic symptoms of inflation, Fan Jianping, the chief economist of the State Information Centre, told the official China Securities Journal.

Fan said an outright decline in consumer prices was unlikely in 2009, but the producer price index may fall in a few months of the year.

Higher grain purchase prices and a possible overhaul of pricing mechanisms for natural resources would prevent consumer price deflation, but tumbling global oil costs and weaker economic growth would weigh on wholesale prices, he said.

China's economic growth slowed to 9.0 percent in the third quarter from 10.1 percent in the second, hurt by the global credit crisis and a weak property sector, leaving the economy on course for its first year of single-digit expansion since 2002.

The slowdown was likely to come to an end in the second half of 2009 so long as the stimulus policies recently announced by the government are put into effect, Fan told the newspaper.

Wu Xiaoling, a former deputy governor of the central bank who is now a senior lawmaker, expected China would grow 8-9 percent next year, the official Financial News reported.



It quoted Wu as telling financial executives that the most important thing for China was to adopt a flexible and prudent macroeconomic policy stance.

The World Bank on Tuesday lowered its forecast of Chinese growth in 2009 to 7.5 percent from 9.2 percent and said it expected consumer inflation to slow to 2.0 percent from 6.5 percent on average this year.

But Louis Kuijs, the senior economist in the bank's Beijing office, played down the threat of deflation. Falling raw material prices were unambiguously good news for China, a big net importer of commodities, and the government could easily respond, for example, by raising minimum wages, if deflation loomed, he said.

"I would not be worried about deflation. Let's be glad we don't have to worry about inflation," Kuijs told reporters.