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Chinese economy still faces deflation pressure
Latest Updated by 2006-05-17 10:05:41

"As the consumer price index (CPI) in urban areas will stay at a comparatively low level, deflationary trend still exists in China in 2006." This is the overall assessment of the Chinese economy this year by Tsinghua University's Center for China in the World Economy (CCWE) on May 13.

CCWE researcher Yuan Gangming indicated that judging by the situation in the first quarter of this year, the Chinese economy was hot but did not go beyond the limit.

According to statistics by China's Central Bank, the country used half of this year's loan quotas in the first quarter. The overly rapid growth of loans caused by the increase of fixed-asset investment has drawn China's attention. Not long ago, the National Development and Reform Commission and the Central Bank respectively published policies to adjust overheated industries and raised lending rates, in an effort to jointly control package loans extended by local governments.

At the end of last year, CCWE predicted that this year's CPI would be 0.01%, indicating a serious trend of deflation. As statistics of the first quarter came out, this center obviously raised the estimated figure of 2006 CPI to 2.41%. Besides, the center raised its estimated 2006 GDP growth rate from 8.98% at the end of last year to 9.5%, which is consistent with the latest forecast by the World Bank.

Other statistics by the World Bank show that in the first quarter, China's added 1.26 trillion RMB (US$157.5 billion) in loans, accounting for more than 50% of the planned 2.5 trillion RMB for the whole year. About half of this quarter's new loans were for real estate development in Jan. and Feb. The World Bank quoted relevant statistics and indicated that China's housing prices in this period kept rising while the vacancy rate also went up.

As to the above figures, Mr. Aloysius Louis G. Kuijs, senior economist of the World Bank Group Beijing Office, pointed out that China's newly built housing may have surpassed demand growth.
Editor: Yan

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