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Official sees no inflation for China this year

world Updated: Jun 17, 2009 07:49 IST

China is not likely to see inflation this year because of excess capacity and the threat that unemployment may sap domestic demand, a senior statistics official said in remarks published on Wednesday.

"Our country will not see the appearance of inflation this year, and its real worries are still deflation," Yao Jingyuan, chief economist at the National Bureau of Statistics, was quoted by the official China Securities Journal as saying.

"Excessive capacity will effectively check the appearance of inflation, keeping prices at low levels for the whole year," Yao was quoted as telling a forum in Shenzhen. "Nor will inflation appear with such a serious employment situation".

Economists have become increasingly divided over whether a full economic recovery is in sight, as Chinese economic indicators paint a mixed picture, with some pointing to improvement but others remaining very weak.

Sun Mingchun, economist at Nomura in Hong Kong, predicted that China's economy would stage a V-shaped recovery. In a research report published last Friday, he raised his forecast for the economy's expansion next year to 10 percent from 8.5 percent.

Many others expect China to see a U-shaped recovery, with the economy bottoming out but maintaining a relatively low growth rate for another two or three years before returning to an annual double-digit growth pace seen each year from 2003 to 2007.

Some even expect an L-shaped pattern, with the economy remaining at a standstill for years without significant improvements.

The State Information Centre under the National Development and Reform Commission, China's top economic planner, said in a research report last week that China was now faced with the increasing risk of stagflation, in which slow economic growth is coupled with high inflation.

The think-tank forecast that stagflation could develop in the third quarter of this year, proposing the government shift its monetary policy to neutral from relatively relaxed if consumer price inflation rises above 3 percent and the annual gross domestic product (GDP) growth remains below 9 percent.