Official: Deflation is over, spending up
China has initially succeeded in its fight against deflation, said Zhang Xueying, a division chief of
the State Information Centre.
The consumer price index, Chinese policy makers' key inflation gauge, rose 0.2 per cent
year-on-year during the first nine months.
"Deflation is now over," Zhang said.
A glance at economic figures supports Zhang's declaration.
Exports soared 33.1 per cent during the first three quarters of this year due to the recovery of the
world economy, and imports rose 38.7 per cent thanks to a more active domestic economy.
Investment in fixed assets was up 12.9 per cent during the period, as the government continued to
pour money into the economy.
Retail sales, the main indicator of consumption, rose 9.9 per cent from January to September to
2.433 trillion yuan (US$293.2 billion).
But Zhang Liqun, a senior researcher with the Development Research Centre under the State
Council, said the 0.2 per cent rise in consumer prices did not mean overall supply and demand has
reached a rational balance.
The researcher's remarks indicate that China's deflationary pressure may still linger.
"The price rise was cost-driven, while not a short of supply," he said.
The increasing price for oil and steel on the international market has forced China to pay more.
"Chinese enterprises will be forced to increase cost for production," Zhang Liqun said, adding this
is not good for economic development.
"The rise in consumer prices was also due to the price hikes for service items such as education,
water and electricity, which is not market-driven," he said.
China should remember that it still lack a strong basis for the country's consumer price to rebound
further.
The researcher said China's retail price index was still in the negative growth of 1.7 per cent
during the first three quarters.
However, Zhang Xueying did not quite agree, saying the consumer price rise was mainly due to
strong demand stemming from the country's rapid economic growth and people's increasing
confidence for their future.
"China's economy has turned for the better," the chief said, adding the country's gross domestic
product rose 8.2 per cent year-on-year during the first three quarters.
"The establishment of a nation-wide social security system further removed worries from
residents," he said.
Zhang said the world economy's recovery will continue to absorb more goods from China.
The central government's policies to stimulate consumer spending would also continue to play a
role, he said.
The central bank has cut the interest rates seven times over the past three years, slashing interest
on one-year deposits to 2.25 per cent.
A disguised interest rate cut in the form of a 20 per cent tax on bank deposit income was put in
place in November last year.
The central government also took other measures such as increasing salaries, providing
compensation for laid-off workers and providing more pensions for retirees to encourage
spending.
In a further move to stimulate consumer spending, the government announced an extension of
national holidays.
During the week-long National Day holiday, a total of 59.8 million people travelled across the
country, which generated 23.0 billion yuan (US$2.8 billion) in tourism revenue.
"Consumption will continue to be a major force for the country's economic development," Zhang
said.
The government also plans to spend more on investment to keep the economy going, he said.
China is likely to issue an additional 160 billion yuan (US$19.3 billion) in treasury bonds for
investment, the chief said.
The government also hopes to encourage investment from private companies by breaking the
monopoly of certain sectors such as telecommunications and railways.
These are signs that private investment has begun to mobilize, Zhang said.
(China Daily)