The second straight month of decline in the consumer price index
(CPI) in December gave a dangerous signal that China may once again
be trapped by deflation.
The National Bureau of
Statistics said on Wednesday that China's CPI fell 0.3 per cent
in December 2001 compared with the same month the year before.
The latest decrease follows a drop of 0.3 per cent in November and
a decline of 0.1 per cent in September, the bureau said.
"This is a dangerous warning," said Niu Li, a senior economist with
the State Information Centre. "If the situation continues, China
will suffer a deflation."
The central government should try to relax the present monetary
policy to encourage individual consumption and private investment,
Niu said.
The monetary policy will help in adjusting the country's consumer
prices, he said.
According to the statistics bureau, average food prices edged down
0.8 per cent in December compared with the same month a year ago,
with prices of fresh vegetables falling 5 per cent.
"A
drop in food price was one reason for the decline in December's
consumer prices," said Zhang Liqun, a researcher of the Development
Research Centre under the State Council.
The situation also suggests that the global economic slowdown is
having an impact on China.
The slowing of the world economy not only meant shrunk exports for
China, but also pressed down the country's consumer prices through
imports, Zhang said.
Niu Li agreed with Zhang, adding the insufficient effective
domestic demand also contributed to the CPI drop.
Policy factors still play an important role in expanding demand,
Niu added.
Fixed assets investment depends greatly on government injections of
particularly treasury bonds, he said.
Consumers could theoretically increase demand by continuing to
spend, but consumption has become uncertain in the months ahead,
the economist said.
To
stimulate domestic spending, the central
has announced seven successive interest rate cuts over the past
four years and began to impose income taxes on bank deposits in
1999, thereby slashing real interest on one-year deposits to about
1.8 per cent.
The central government also took other measures such as increasing
salaries, providing compensation for laid-off workers, increasing
pensions for retirees and announcing week-long National Day and May
Day holidays to boost consumption.
But the central government cannot expect Chinese consumers to spend
much more since many have to worry about pension, medical care and
their children's education, he said.
And while the vast rural population may have more consumption
desire many did not have the money to spend.
(China
Daily January 18, 2002)