Average food prices edged up by 1.7 percent in September, with the prices of fresh fruit, vegetables and eggs rising 21.7 percent, 7.0 percent and 5.2 percent respectively.

Even the cost of tuition fees rose by 3.0 percent and the cost of housing rose 3.0 percent.

However, the consumer price index (CPI) declined 0.1 percent in September compared with the same period last year, suggesting that overall supply and demand are still unbalanced.

Zhang Liqun, a research fellow with the Development Research Centre under the State Council, said supply is greater than demand for more than 80 percent in terms of industrial products.

"This situation could eventually lead to falling prices and falling profits for China's producers, which would threaten the overall economic growth in the long run," he said.

On the other hand, China's exports growth, an important engine for gross domestic product growth last year, decreased because of a slowdown in the global economy, Zhang said.

This drop only increases the likelihood of deflation, he said.

Given this situation, the government has pinned hopes on stimulating domestic demand - fixed assets investment and consumption - to boost the economy.

The central People's Bank of China has announced seven successive interest rate cuts over the past four years and has begun to impose income tax on bank deposits in 1999, having slashed real interest on one-year deposits to about 1.8 percent.

(China Daily October 19, 2001)