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Stagflation Can Not Explain China's Economy
- Oct 08, 2018 -

Some time ago, some media appeared that there might be stagflation or suspected stagflation in China's economy. Its main basis, on the one hand, stems from partial observation of food prices and production prices; on the other hand, out of concern that changes in the external environment may increase downward pressure on the economy. However, it is obviously untenable to infer that China's economy will stagnate only by some changes in certain factors. In other words, "stagflation" theory can not read China's economy.

"Stagflation" has a very clear theoretical meaning in economics. Under normal circumstances, economic growth and change will have an effect on the unemployment rate and prices. Once the economy "stagnates" or the growth rate falls, the unemployment rate rises, if the price also appears the abnormal phenomenon that does not fall but rises, it is "stagflation". Popularly speaking, growth stagnation and inflation coexist. So, whether there is stagflation or suspected stagflation in China's economy? We can observe it from three aspects: first, whether the growth is stagnant; second, whether there is inflation; third, whether the unemployment rate is high.

First of all, look at growth. We should observe both the total change and the structural factors. From the perspective of GDP, China's 12 consecutive quarters of economic growth have been stable in 6.7% to 6.9% of the high-speed interval. In the first eight months of this year, the growth rate of high-tech industries exceeded 10%. Strategic emerging industries and equipment manufacturing industries both maintained a relatively rapid growth of 8.8%, significantly faster than the growth rate of 6.1% of industrial added value above the scale. The development trend of modern service industry is also very good. Facts show that, despite the increase in external environment variables, China's economic self-adaptability and ability to withstand external risks have not been hampered. Macroscopically, China's economy has been developing steadily and steadily for the better, with strong economic growth tenacity. At the micro level, with the optimization of the economic structure and the improvement of the micro-foundation of economic operation, more and more enterprises continue to strengthen their self-regulation ability, and the market has more room for manoeuvre.

Second, look at prices. We should observe consumer prices, industrial prices and service prices as well as observe relevant monetary policies. The latest data show that consumer prices rose 2.3% year-on-year in August, within reasonable expectations, there is no anomaly. From the analysis of factors driving up consumer prices, it is mainly food prices, especially pork and vegetable prices. Taking pork prices as an example, since February, 2017, pork prices have continued to decline, pig stocks, the number of pigs have declined, coupled with the occurrence of epidemics in individual regions, pork supply reduction will inevitably lead to price increases. As market supply and demand adjust this cyclical change, pork prices will stabilize again. From the perspective of non-food factors, China's supply of industrial products will not be fundamentally changed in the short term; with the sustained and rapid development of the service industry, service consumer prices will show a moderate upward trend. At the same time, the current monetary policy is robust and neutral, and there is no dangerous internal cause for inflation.

Third, look at employment. Whether there are fluctuations in growth or prices, as long as employment is stable and unemployment rate is low, there will be no major economic problems. This is a very important observation point to judge the fundamentals of China's economy. According to public data, the unemployment rate in the national urban survey was 5.0% in August, down 0.1 percentage points from last month and the same month last year, and 4.3% for the 25-59 year-olds in particular, and 0.1 percentage points from last month. This shows that China's employment situation is not only overall stable, but also the basic situation of economic operation provides more possibilities for sustained expansion of employment, and the quality of economic growth is relatively good.

To sum up, the current economic growth rate, prices and employment indicators clearly show that China's economy does not exist stagflation or suspected stagflation phenomenon, social suspicions and worries can be stopped. However, we must not take it lightly in view of the fact that "we must prepare ahead of schedule and serve the common path". We should always adhere to the problem-oriented, bottom-line thinking, timely capture the subtle changes in the complex economic situation at home and abroad, and make preparations in advance to deal with various risks and challenges. At present, along with the obvious changes in the external environment, on the one hand, we should pay close attention to the possible adverse effects of the import factors, including the transmission pressure of the upstream product price changes; on the other hand, we should dialectically analyze and correctly judge the economic fundamentals of China, and timely clarify the misleading opinions. We should guide the expectations of the society, put confidence into action, strive to maintain stable and healthy economic growth, and firmly promote economic and social development to achieve new leaps and bounds.