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People's Daily Online Economists warn of approaching deflation


Some Chinese economists have warned that China's economy could see deflation in near future, as the country's consumer price index (CPI) grew less than 2 percent for four consecutive months, the Beijing-based Economic Information Daily reported Friday.

According to figures released by the National Bureau of Statistics Wednesday, the Chinese CPI in July, a major inflation index, rose by only 1.8 percent, equivalent to that in June, the highest during past four months. It was the fourth month that the CPI's growth rates were lower that 2 percent since March this year.

The CPI increase for July 2004 was 5.3 percent.

In July, the price of grain dropped by 0.9 percent, also falling for four consecutive months, the paper said.

During the second quarter this year, the price of commercial houses in 35 cities increased by 8.0 percent year on year, and by 1.5 percent from the previous quarter, the paper said. The growthrate fell by 1.8 and 1.2 percentage points, respectively, from the first quarter.

The Chinese CPI in the January-July period grew by 2.2 percent year on year while the figure in the same period last year was 3.8 percent, the paper added.

Yuan Gangming, director of the macro-economy researching institution of the Chinese Academy of Social Sciences, was quoted as saying that the decrease of grain and housing prices indicated that deflation is approaching.

Lin Yifu, director of China Center for Economic Research (CCER)of Beijing University, said that owing to the overproduction in most manufacturing sectors since 1998 and the to-be-overcapacity from over-investment in some sectors in 2003 and 2004, China is expected to see deflation caused by overcapacity in the latter half of 2005.

Evident deflation is apparent to appear in the fourth quarter this year, said Wang Jian, deputy secretary general for the Economic Research Institute under State Development and Reform Commission, predicting overcapacity to take place likely in 2007.

Source: Xinhua