A 1.6 percent drop in consumer prices in February from a year earlier sparked fears of increasing deflationary problems in China. The price drop in February ends more than six years of price increases, with February 2008 seeing a record consumer price index (CPI) rise of 8.7 percent due to soaring energy and food prices. CPI growth has slowed down over the last ten months, with only 1 percent increase in January. China’s National Bureau of Statistics said in a statement that it was too early to speak of deflation in China and the price drops were mainly caused by holiday distortions and decreasing raw material prices.
China blamed the U.S. for causing the confrontation between a Navy surveillance ship, Impeccable, and five Chinese vessels in the South China Sea. The Navy ship was blocked and surrounded by the Chinese vessels following a week of increasing tensions between U.S. and Chinese ships in the South China Sea. According to the U.S., the Impeccable operated in international waters about 75 miles from the Chinese island of Hainan. China on the other hand claims an economic exclusion zone extending 200 nautical miles (230 miles). Tensions in the South China Sea remain over disputed maritime borders between adjacent states.
Yin Weimin, Minister of Human Resources and Social Security, warned of a “grave” employment situation in China. According to Mr. Yin, migrant workers and college graduates unable to find employment are at the center of the government’s efforts. He expressed confidence that initial measures were already taking effect. The number of new laborers increased to 690,000 and 930,000 in January and February respectively, up from 380,000 in December last year. Compared to China’s total labor force these numbers are moderate, but Mr. Ying sees the positive trend as an important sign of recovery.
Wang Jian, a researcher affiliated with China’s top planning agency, called for a 3 percent appreciation of the yuan in order to stop capital outflows. A stronger yuan would also help China make overseas acquisitions in commodities, oil fields, and other strategic assets. Mr. Wang warned of letting the yuan depreciate to help the export sector, as this would result in large amounts of foreign capital fleeing China.
