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Adviser: No reason for China to fear deflation

(Agencies)
Updated: 2009-02-16 19:01

Deflation in China would be no cause for concern because it would reflect falling prices of imported commodities and energy, a central bank adviser said on Monday.

Related readings:  Deutsche Bank: China to see worst deflation in a decade  Amid deflation fears, keep an eye on inflation  China price pressures 'in check'  Specter of deflation warned

That would mean lower costs for producers, which in turn could stoke consumer demand, Fan Gang, who sits on the central bank's monetary policy advisory committee, told an economic forum.

"There is a clear difference between deflation caused by cost factors and deflation caused by shrinking demand at home," Fan said.

China's consumer price index (CPI) was just 1.0 percent in the year to January, and many economists expect an outright decline in the price level as early as February.

China is already experiencing deflation at the factory-gate level as producer prices fell 3.3 percent in January.

Turning to other issues, Fan said the dollar would remain the dominant reserve currency for the next decade or two; as a result, he ruled out major changes to the global monetary order.

He said China should continue to focus on putting its own house in order by reducing the government's role in the economy, boosting domestic consumption and lowering savings, especially in the corporate sector.