economy - Economists warn against deflation

Chinese economists have started to speculate China might see a deflation in the second half of this year, according to the official news agency Xinhua. (Tipped by the China Digital Times).

Lin Yifu, Director of China Center for Economic Research (CCER)of Beijing University, said at the forum held quarterly by CCER that owing to the overproduction in most manufacturing sectors since 1998 and the to-be-overcapacity from over-investment in some sectors in 2003 and 2004, China is expected to see deflation caused by overcapacity in the latter half of 2005.

"Some sectors" means of course for a large part the automotive industry. More economist follow his argument, although they have sometimes different reasons. For example the expected good harvest would also cause the agricultural prices to drop. Total income on the country side would then go up despite an average drop in prices, but I'm not an economist, of course:-). That would lead to a drop in migrant workers to Guangdong, a rise in wages and then again inflation... Maybe only in the first half of 2006.