Supply-side reform 'key' to economy

Experts say inflation no threat, but staving off its opposite is vital

More efforts are needed to boost supply-side reform to fend off deflation in the second half of the year, economists and officials said on Friday.

Wang Jun, a senior economist at the China Center for International Economic Exchanges, a government think tank, said heightened deflation pressure is more worrisome than inflation.

"The fear of inflation earlier this year has largely gone, as data in the second quarter showed," Wang said. "Consumer prices will not pick up significantly in the second half of the year."

Wang Jun, economist at the China Center for International Economic Exchanges.[China Daily]

The think tank predicted that the consumer price index, a primary gauge of inflation, is expected to increase by 1.8 to 2 percent in the third quarter year-on-year, and by 2 to 2.2 percent year-on-year in the fourth quarter, remaining below the 3 percent official target.

Given the softening inflation, expectations for more stimulus measures and more interest rate cuts have risen among some economists.

But Wang said the central bank is expected to maintain a prudent monetary policy in the second half of the year.

"A mass stimulus is not possible," he said, predicting a reduction in required bank reserves in the second half of the year, with little likelihood for an interest rate cut.

"Low interest rates will not help prick the housing bubble," Wang said, referring to the potential financial risks in the real estate sector, which was listed among the country's key challenges by the central government.

"Policymakers should be more concerned about how to adopt macro policies to better cope with the heightened deflation pressure," he said.

Guo Kesha, an economist at the Chinese Academy of Social Sciences, expressed similar concerns, saying that the Brexit and rising uncertainties in the global market would set off another round of global commodity price declines, and would further fuel domestic deflationary pressure.

Yao Yudong, head of the Research Institute of Finance and Banking of the People's Bank of China, the central bank, said that despite the likely tightening of global liquidity after the Brexit, the impact on China will be minimal.

"China does not face a liquidity problem compared with other major economies. The key task is to press ahead with supply-side reform," he said.