China has a larger space to maintain growth
- By Mei Xinyu
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E-mail China.org.cn, September 9, 2015
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The dilemma [By Jiao Haiyang/China.org.cn] |
China's economic fundamentals are stronger than other countries, and its macro-control still has larger space to maintain economic growth, which is not only reflected in its flexibility to expand fiscal investment, cut interest rates and reserve ratios more than Western central banks like the Federal Reserve, but also in its ability to tackle the ostensibly contradictory task of curbing inflation and maintaining growth at the same time.
READ: Will Chinese economy collapse?
China's solid fundamentals actually provide a larger space for the People's Bank of China (PBOC) to loosen monetary policy without worrying about rising inflation.
The reason for this judgment is that China's inflation is not only relatively low but also essentially imported, being affected by fluctuations in commodity prices like raw materials, energy and grain products. With weakened global market for primary products, China may face certain levels of deflation instead of inflation for a relatively long period of time, irrespective of the minor influence from rising prices of several consumer products like pork.
According to statistics from the International Monetary Fund (IMF), petroleum and non-petroleum products prices plunged from the end of 2012 to mid-2015 as a 10-year bullish market for primary products came to an end. The IMF World Economic Outlook Report released last April forecast oil prices for 2015 might drop 39.6 percent from the previous year.
Based on experience, primary products worldwide usually follow a cycle of 10 years of high prices followed by 10 to 15 years of retreat. China became a net importer of primary products from the 1990s, so it may suffer from a relatively longer period of deflation as the market turns bearish.
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