Figures from the bureau indicate that the average ex-factory price dropped 4.2 per cent compared with the same month last year.

During the first two months, ex-factory prices edged down 4.2 per cent compared with the same period of last year.

Experts said the price slump, which has caused a drop in the consumer price index - policy-makers' key inflation gauge - was mainly because of an irrational product structure.

Niu Li, a senior economist with the State Information Centre, said more than 80 per cent of domestically made products are oversupplied.

"This situation will not change much in the short term, because the country has yet to create new products and new areas for consumption and investment," Niu said.

Policy factors currently still play an important role in expanding domestic demand, he said.

Fixed assets investment greatly depend upon injections of government cash and treasury bonds in particular, he said.

Consumers could theoretically help pick up demand by increasing their spending, but consumption will become an uncertain contributor in the months ahead because Chinese consumers have more worries such as pensions, medical care and children's education, he said.

The vast countryside population, who wish to consume more, do not have enough money because of the slow growth in rural incomes during past years.

Zhang Liqun, a senior researcher with the Development Research Centre under the State Council, said the price decline also suggests that the global slowdown is having an impact on China.

"The global slowdown not only resulted in shrinking exports for China, but also depressed the prices of domestically made products through imports," Zhang said.

Foreign products - including low-priced oil and raw materials - began to flood the Chinese market following the nation's membership of the World Trade Organization, he said.

According to the National Bureau of Statistics, ex-factory prices of oil products dropped 21.2 per cent in February compared with the same month last year, because of lower prices on the international market.

The ex-factory price of crude oil declined a year-on-year 24.1 per cent in February, and that of finished oil dropped an average of 19.7 per cent, the bureau said.

(China Daily March 28, 2002)