MOSCOW (Sputnik) – While international investors have raised concerns about deflation in China due to a decrease in household income after a months-long lockdown and a subsequent fall in consumption, Chinese economists believe that the resumption of infrastructure projects will help the country recover people’s income, and therefore boost demand.
After Chinese cities, including the epicenter of Wuhan, lifted tough lockdown measures to contain the spread of the new coronavirus disease (COVID-19) in recent weeks, many factories and businesses reopened and domestic production began to recover steadily.
However, international investment banks have warned about the deflation pressure China could face due to consumption recovering much slower than production.
China’s Producer Price Index (PPI), which measures the prices at the factory gate, fell 1.5 percent year-on-year in March, official figures from the National Bureau of Statistics showed. The country’s Consumer Price Index (CPI), which is an indicator of inflation, rose 4.3 percent year-on-year in March, down from the 5.2 percent year-on-year growth in February.
Natixis pointed out in its report that fallen household income during the lockdown has become the driving force for the sluggish recovery in consumption.
However, Chinese economists argued that the steady restoration of production could help bring more jobs and improve household income, which would boost consumer confidence.
Shen admitted that if people cannot find new jobs in 2-3 months, that could lead to continued weak demand in consumption.
Nevertheless, the economist pointed out that infrastructure projects could lead to China’s production recovery.
Shen acknowledged that weak demands in the global markets could become an obstacle for Chinese exporters to rebound to their normal income levels.
The economist added that China’s economic recovery after the lockdown could be sustainable because strict social distancing measures such as mandatory temperature checks and the requirement of wearing face masks in public places could help reduce the risks of the second wave of mass COVID-19 infection.