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China exporting deflation claim not comply with fact

2014-12-11 14:43:22Source:XinhuaAuthor:

The recent mumbles by many that "China is exporting deflation" across the world does not conform to fact.

Some western media and economists are claiming the world economy is threatening by deflation, which is emanating from China.

The argument goes that, as the world's top exporter, China has seen the emergence of deflation and weak domestic consumption, and it is shifting its own deflation by exporting cheap commodities to trade partners.

Focusing on lower prices, the accusation fails to take into account that China is not fully capable of setting the retail prices in import countries to successfully export deflation.

Indeed, in the past 20 years, China's share of global exports has increased from less than 5 percent of the total to 12 percent. As a consequence, relative prices - not overall prices - may be affected. But the direct effect of Chinese export prices on inflation or deflation elsewhere is quite limited.

It is true that Chinese prices in certain sectors are declining. Producer prices have fallen for 33 consecutive months in a row. Growth in consumer prices has come down from more than 6 percent in the middle of 2011 to less than 2 percent now, also well below the government's annual target of 3.5 percent.

However, the decline in producer prices has been largely driven by the slump in global commodity prices. Price levels on the consumer side are less worrying as a lower consumer price index has stemmed from easing food inflation and prices of consumer goods remain stable. Meanwhile, incomes in urban regions keep rising faster than the overall economy, a foundation to drive consumption.

Therefore, despite the apparent weakness in prices, deflation is not a concern for China at present.

In a sense, China is actually the victim of global deflation, rather than the source of it. Accompanied with fast export expansion, the country's imports also grow rapidly and it is contributing to global supply as well as demand. Its domestic product prices have been adversely affected by plunging prices on the global market.

The "China exporting deflation" theory has overstated any adverse impact China could make on the world economy but understated its contribution.

Economic records of the past decades prove that when the world economy fares well, the Chinese economy performs better; when the world economic situation is not promising, the Chinese economy remains a sound development and plays an ever-important role in fostering a new round of global economic growth. The China factor has proved a boon to the world economy.