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February 6, 2015

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Deflation risks in China likely to climb

CHINA may post a weak economic performance for January and deflation risks may increase, analysts said ahead of the data release next week.

The National Bureau of Statistics is set to release the inflation data next Tuesday. Figures for real activity, including industrial production, fixed-asset investment and retail sales, will be unveiled in March to incorporate January and February data and minimize the impact of the Chinese New Year which falls on February 19.

Wang Tao, an economist at UBS, said the later timing of the Chinese New Year this year will likely lift real economic activity up while depressing inflation.

The UBS predicted the Consumer Price Index, the main gauge of inflation, may rise a fractional 0.7 percent from a year earlier in January, down from the pace of 1.5 percent in December.

The Producer Price Index, the factory-gate measurement of inflation, was expected to fall 4 percent last month, worsening from a 3.3 percent cut a month earlier.

But growth in trade may stabilize, Wang said, as a result of improving demand in Europe which offset weakness in the United States.

Lian Ping, chief economist at the Bank of Communications, also said the inflation rate may stand at a five-year low by rising by less than 1 percent, while exports may be weaker than expected.

China’s gross domestic product expanded 7.4 percent in 2014, the slowest in 24 years.

The official Purchasing Managers’ Index, a gauge of operating conditions in manufacturing, fell below the 50-point mark to signal contracted factory activity for the first time since October 2012.

To arrest the economic slowdown, the People’s Bank of China cut reserve requirement ratio by 0.5 percentage points, effective yesterday, to allow banks to put aside less cash as reserves. The move may free up nearly 1 trillion yuan (US$160 billion) in market liquidity.

Zhu Haibin, chief China economist at JPMorgan, said the weak growth momentum and disinflationary risk justified the ratio cut.




 

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