Research On Causes And Countermeasures Of China's Deflation Risk During The New Normal Stage

Throughout the history of the world economic development,economic growth was usually accompanied by inflation then deflation occurred less frequently.Therefore,most scholars and policy-makers have paid more attention on inflation,but paid little attention on the deflation.However,compared with inflation,deflation is generally more difficult to cope with,because once deflation were occurred which would bring the protracted disaster.Whether the great depression of the United States in 1930s or Japan's economy falling into a prolonged slump for a long time after the economic bubble burst since 1990s,and now falling into the deflationary quagmire once again,or the first round of deflation occurred since the founding of China after the Asian financial crisis in 1997,which had bring a serious impact on the economy and is still a lingering fear today.Following successfully predicted the Asian financial crisis in 1997,Paul R.Krugman predicted again on the eve of winning the 2008 Nobel Prize in economics,in the book of "Return of Depression Economics and the 2008 economic crisis",he mentioned that severe recession will not be avoided in the 21st Century,and the world may suffer a "lost decade",then Depression Economics will return to the stage of history.Is it just alarmist or will be come true?We have to make a reflection that whether deflation strikes again?The voice of deflation raised again after the US subprime mortgage crisis triggered by the international financial crisis in 2008.In order to prevent a recession,China has offered a four trillion investment plan,trying to turn the tide,which propelled a new round of economy growth.Then,macroeconomic indicators continued to weaken along with China's economy had entered into the New Normal stage.The growth of CPI was less than 2%in July 2012,then began officially to fall into the "1" era from August 2014.PPI began to keep negative growth since March 2012,and the decline continued to expand.PPI had been negative growth for 46 months by the end of 2015.At the same time,GDP fell below the target of 7%to achieve the growth rate of 6.9%.Thus the controversy was once again sparked about whether China was currently facing the risk of deflation.However,the current round of deflation risk occurred under the background of China's economy entering a New Normal stage that is different from the deflation after Asian financial crisis in 1997.The main characteristics of the New Normal include growth shift,structural adjustment and power conversion.China's economic is facing downward pressure which is the inevitable result of the changing mode of economy growth and the demographic transition.According to the measure of per capita GDP,China has been the world's second largest economy in 2010,and according to the classification criteria of the World Bank(as measured by per capita GDP),China has entered the ranks of upper middle income countries.In addition,the proportion of China's working-age population(15-64 years)began to decline after peaking in 2010 since China entered the stage of aging population in 2001,the total dependency ratio also began to rise since 2010.For a long time,the demographic dividend has propped up the rapid growth of the Chinese economy,and the fundamental shift in the population structure means that the traditional momentum of growth gradually declined,resulting in the drop of potential growth rate,the actual economic growth is slowing.If the slowdown of economic growth is an important manifestation of the New Normal,deflation risk is the product of structural contradictions under the New Normal.This paper argues that the causes of current deflation risk come mainly from the structural shocks of supply side,such as serious overcapacity problem,debt-deflation caused by excessive debt and the changes of population structure.Based on the above background,this paper select causes and countermeasures of China's deflation risk under the New Normal as the research object.Firstly,on the basis of theoretical analysis and literature review,screening mechanisms of deflation are described,and through there is a preliminary determination whether deflation occurs in China by analyzing the running status of the current macroeconomic and the trend of changes in the price level.Secondly,starting from the direct reasons of deflation risk,the main influence factors of deflation risk are qualitatively studied from point of views of structural factors,resources and environment factors,currency factors and external impact factors.Furthermore,the influence of each factor on deflation risk is inspected through the empirical analysis.Once again,explore experience and enlightenment which is worthy of learning on the basis of carding the governance policies of deflation at home and abroad.Finally,Suggestions are put forward to dealing with deflation risk from three dimensions include the structural reform of supply side,aggregate demand management policy,and other supporting reform measures.This paper is divided into seven parts,the main structure and contents are as follows:The first part is the introduction,which introduces the background and significance of this study,lists the research ideas and research methods,and points out the possible innovations and deficiencies.The second part is the theoretical origins and the literature reviews of the deflation.The deflation theories are described such as Marx's deflation thought,imbalance theory between supply and demand,the money supply shrink theory,Fisher's debt deflation theory.On this basis,sort out and review the existing literatures at home and abroad which are summarized mainly from both the nature and causes of deflation.Then put forward the research direction and main content on the basis of the existing literature.The third part is screening mechanism and the preliminary diagnosis of the deflation.The definition category,the criterion of judgment,and the measurement index of deflation are analyzed theoretically.Describe the single factor theory,the double factors theory and the three factors theory in detail which is decided respectively or jointly by the falling price level,the falling monetary supply and the sustained economic recession.On this basis,analyze specifically the China's macroeconomic operation situation,especially the trends and characteristics of the price level,money supply and economic growth,clarify the dialectical relationship between them and make preliminary determination about the current situation of China's deflation.The fourth part is the causes and the empirical analysis of deflation risk.Analyze the causes of deflation risk qualitatively from structural factors,resources and environment factors,currency factors and external shocks.Based on the traditional Phillips curve,introduce the structural factors and other control variables to expand the Phillips curve model,and analyze the impact of various factors on the inflation rate,then further establish the three mechanisms of threshold regression model with the inflation rate as a threshold variable.The fluctuation of inflation rate during the period of the sample will be divided into three stages including deflation,low inflation and high inflation,whereby the influence degree on deflation risk of various factors.The fifth part is the policy and experience about deflation at home and abroad.Review the background of the era,the causes and economic impact of deflation occurred in the history of China,analyze comparatively the characteristics and management experience of the United States and Japan's deflation,and explore its enlightenment to China.The sixth part is the policy recommendations to deal with deflation risk.On the basis of summarizing the conclusions of empirical analysis,consider the root reason which caused China's deflation risk,especially the impact of the structural factors such as the changes in the population structure,overcapacity,excessive debt.Then put forward the implementation of structural reforms,aggregate demand management policies as well as a variety of scientific and reasonable collocation of strategy,in order to effectively cope with China's deflation risks.The seventh part is conclusion and prospect.The main conclusions of this paper are given,and made worthy of further study and discussion issues.