The domestic economy still faces deflationary pressure, although
some experts optimistically said the country's economy had stepped
onto a stable and fast development track.
"The evidence was still weak that China had finally pulled out of
its two-year fight against deflation,'' said Zhang Xueying, a
senior economist with the State Information Centre.
The consumer price index (CPI), the key inflation gauge, rose only
0.1 per cent year-on-year during the first 10 months of this year
due to price hikes of oil and steel on the international
market.
As
late as April, consumer prices fell 0.3 per cent from a year
earlier, suggesting that the danger of deflation was not far
off.
Meanwhile, the retail price index, which does not calculate prices
for housing and service items, was still recording negative growth
during the first 10 months.
The economist's view was echoed by Zhang Yingxiang, a senior
statistician of the National Bureau of Statistics. "We are not 100
per cent convinced that deflation is over,'' she said.
But both Zhang Xueying and Zhang Yingxiang said the economy has
turned for the better.
Statistics show that the domestic industrial sector produced 1.9
trillion yuan (US$230.8 billion) worth of products during the first
10 months of this year, due to more consumer spending, heavy State
investments and soaring exports.
Exports soared 32.2 per cent during the period as a result of the
recovering world economy, while imports rose 38.6 per cent due to a
more active domestic economy.
During the period, fixed assets investment increased by 13 per cent
to 1.59 trillion yuan (US$191.2 billion), as the central government
continued to pour money into the economy.
Retail sales, the main indicator of consumption, rose 10.4 per cent
during the period to 302.9 billion yuan (US$36.6 billion).
"But we should keep a clear mind that the overall supply and demand
are still imbalanced,'' the statistician said. "More than 90 per
cent of the country's products are oversupplied.''
Meanwhile, policy factors played an important role in expanding
domestic demand from January to October.
Fixed assets investment greatly depend upon government injections
and in particular, treasury bonds, she said.
China plans to sell a total of 150 billion yuan (US$18 billion)
worth of bonds next year to finance investments in basic
infrastructure, according to media reports.
"The government investment could help create demands, but it
usually takes time before the demand is created,'' the statistician
said.
But if the State encourages private companies to spend on
infrastructure, the country could find a new way of economic
development.
The government could take measures such as breaking up monopolies
in certain sectors such as telecommunications and railways to
encourage private investment, Zhang Xueying said.
Consumers could theoretically help pick up the demand by continued
spending, but consumption has become an uncertain contributor in
the months ahead, he said.
With an aim to lift consumer spending, the central bank has
announced seven successive interest rate cuts over the past four
years, having slashed 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
income from bank deposits was also put in place in November last
year.
The State has also taken other measures such as increasing
salaries, providing compensation for laid-off workers and providing
more pensions for retirees to encourage spending.
Furthermore, the government earlier announced a
consumption-boosting, week-long National Day holiday and Labour Day
holiday.
During the National Day holiday period, a total of 59.8 million
people travelled across the country, which generated 23 billion
yuan (US$2.8 billion) in tourism revenue.
"The central government could not expect Chinese consumers, which
contributed 58.8 per cent to the gross domestic product growth
during the first half year, to spend further as they have much more
worries such as pension, medical care and children's education,''
Zhang Xueying said, adding that a nation-wide social security
system has not been established.
The vast rural population, which have more desire to spend, lacks
enough money.
(China Daily 12/03/2000)