When Chinese authorities announced that monthly measurements of prices fell again in November -- by 2.8 percent -- they were marking the 14th consecutive monthly decline in the retail price index. Retail prices fell 2.9 percent in October and 3.3 percent in September. The Government has responded by trying to halt deflation with new rules on minimum prices and by cracking down on smuggling, which has become a serious problem recently. At an economic conference in Beijing last month, the country's top leaders set their priorities for 1999. The priorities include shoring up domestic demand, halting the slide in exports, reforming state-owned companies and increasing wages for urban and rural workers. That is a tall order, yet the overall outlook remains promising. China's leaders also promised not to devalue their currency, the yuan, this year. Rumors that China would be forced to devalue echoed around Asia throughout 1998. Yet they fed on an analysis of statistical figures that fundamentally misunderstood political and economic reality in China today. Naturally, there are some reasons for Beijing to devalue, like the need to spur exports at a time when the economy is weakening, when foreign investment is falling and when millions of urban workers are facing unemployment. Yet are deeper reasons for Beijing not to devalue. China is in the middle of a wrenching shift from a state-run to a market-oriented economy, trying to sell the bulk of its Government-owned industries, and probably the last thing leaders in Beijing want is a further cause of disruption. Making China's exports cheaper, many economists argue, is an inefficient way to strengthen its economy. In the long run, they say, maintaining the currency makes economic sense by providing a stable environment for investment, foreign and domestic.
When Chinese authorities announced that monthly measurements of prices fell again in November -- by 2.8 percent -- they were marking the 14th consecutive monthly decline in the retail price index. Retail prices fell 2.9 percent in October and 3.3 percent in September. The Government has responded by trying to halt deflation with new rules on minimum prices and by cracking down on smuggling, which has become a serious problem recently. At an economic conference in Beijing last month, the country's top leaders set their priorities for 1999. The priorities include shoring up domestic demand, halting the slide in exports, reforming state-owned companies and increasing wages for urban and rural workers. That is a tall order, yet the overall outlook remains promising. China's leaders also promised not to devalue their currency, the yuan, this year. Rumors that China would be forced to devalue echoed around Asia throughout 1998. Yet they fed on an analysis of statistical figures that fundamentally misunderstood political and economic reality in China today. Naturally, there are some reasons for Beijing to devalue, like the need to spur exports at a time when the economy is weakening, when foreign investment is falling and when millions of urban workers are facing unemployment. Yet are deeper reasons for Beijing not to devalue. China is in the middle of a wrenching shift from a state-run to a market-oriented economy, trying to sell the bulk of its Government-owned industries, and probably the last thing leaders in Beijing want is a further cause of disruption. Making China's exports cheaper, many economists argue, is an inefficient way to strengthen its economy. In the long run, they say, maintaining the currency makes economic sense by providing a stable environment for investment, foreign and domestic.
china_economy_in_1993-1999_2003_2004_2008_2012.docx