The Deflation In China And Its Countermeasures

The Deflation of Our Country and CountermeasuresDigestOur economic grows rapidly since the reform in recent 20-years,butit occurred four high inflation in this period .We accumulated abundantexperience in the process of dealing with the high inflation and made themacro -economy "land softly "in 1996.But we recently meet with aproblem that we had never met with before --deflation .Many articlesabout whether or not it has occurred and its courses and countermeasureswere often published in such as newspapers , magazines and internalreports. They have different views or it .1 think that the economy atpresent is coming into deflation stage and the main task is to fight againstdeflation.Compare with inflation, deflation means the general prices decreases.The "price "is the price represented by currency , not by othercommodities; "decrease" is not low level ,but is decrease continually;."general" is the general price ,not the specific commodity price. Atpresent , the deflation shows at three main aspects. First ,the purchaseprice of agriculture products declines sharply and the farmers are affectedmostly ;secondly, the price of industry products is at decliningtrend ;thirdly ,the price changes between different types of commodityand service market varies largely .It affects different producers differently;last ,all areas of country are coming into deflation status. Deflation is theprediction of economic recession but it does not result in economicrecession unavoidable .If it is not dealt with well or promptly,thepossibility of recession will much larger and at least some regions orindustries will be in recession.The deflation has its external and internal reasons .The externalreason is the global background. Affected by the Asian Financialcrisis ,the whole' year of 1998 is the year that erupted the financialcrisis .The crisis expanded to Europe , America ,and Brazil was affectedto occur currency crisis. The international speculators shocked 1-1k-dollar--link-Exchange-rate a few times ,and Hk financial market fluctuatedgreatly .All of the brought direct impact and pressure on the economicgrowth ,RMB exchange rate of China ,the turmoil affected peoplesconfidence and resulted in the global deflation in 1 998.th global generalprice decreasing must affect domestic market .The internal reason is morecomplicated and includes structural factor and policy factor, in myopinion ,first ,the serious abundance of productive capacity is animportant factor of delfation. We can conclude it from closing wells incoal industry in 1998,reduction 10% steel industry in 1999,etc.Theabundant capacity shows that the potential output increases and the realoutput is lower than potential output ,secondly ,the present abundantcapacity is the inevitable result of hot economy. Secondly, the seriousinsufficient demand is the main reason of deflation. In 1996,after theeconomy implemented "landing softly" the economy came into shrinkperiod of a new economic cycle ,and the economic growth started toslide .Furthermore ,as the economic reform deepens ,the retirementinsurance ,medicaL insurance ,homing system reform are argent and near.Common people feel uncertain about future and their income prediction islow .They increase savings to prepare for the emergency and do not spentmoney easily. Thirdly ,it is the subjective factor that we do not recognizedeflation dearly and evaluate the difficult situation insufficiently. In1 998,some macro-economy policy reform measures was not nicely andsuitable . I think that it is more significant to reconsider the problems and2experiences of the subjective factors and economic policy than to onlyanalyze the objective factors. The difficulties facing the economic growthis the result of all above factors jointly...