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be introduced,
they
should not hamper unduly the current
economic growth pace.
This may suggest that the higher
inflation rate is still considered to be not an unacceptable
price to pay for China's economic reforms currently in But in the light of the latest inflation trend, the possibility of stronger restraint measures cannot be ruled
force.
out.
Causes of the inflation
6.
Inflation in China often occurs as a result of
basic demand and supply imbalance, where the main demand components, be they consumption or investment, grow at a
imbalance.
pressure
pace too rapid for the supply capacity of the economy to
cope.
An "inflationary gap" thus emerges from this If the excess demand is being accommodated by relatively loose monetary and credit conditions, the upward
on prices will be even greater. Deficiencies in
the supply sectors, including low productivity, poor
management, cost irrationality and inadequate infrastructure and back-up services, can also be responsible, as they tend
reduce the flexibility of adjustment in supply to
changing demand.
Other factors of relevance include the
continued rise in labour costs and implementation of the price reforms. These factors are examined individually in
the ensuing paragraphs.
to
7.
On
rate
of
the demand side, it is noteworthy that consumption expenditure
in China was growing at a slower
than overall output of the economy. In 1992 the value retail sales grew by 16% over 1991 (4),
while the
(4)
Growth rate in money terms
of retail sales in China
(*)
1986
1987
1988
1989
1990
1991
15.0
17.6
27.8
8.9
2.5
13.4
GF 323
1992
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