Central bank vice governor Su Ning sees no significant threat of deflation in China, despite the National Bureau of Statistics report that consumer prices fell for the first time since 2002 as food, clothing and fuel costs declined.

"Falling prices don't necessarily mean deflation. At the end of last year, the government took timely measures to boost the economy. As long as we continue our efforts, deflation is a remote possibility," said the vice governor.

Professor Zhang Xiaoji also does not think deflation is likely to take hold.

"Though deflation is a real concern, I don't think China has any risk of entering a significant deflationary period," said Zhang, who is a professor at the Development Research Center of the State Council, a government think tank.

Responding to expectations that the central bank will cut interest rates and bank reserve requirements, Su Ning said the bank will use monetary tools according to the economic climate, citing money supply as a factor.

"The negative reading is within expectations. Both the consumer price index and producer price index will remain low in the next few months. But as demand is unleashed by the stimulus measures, prices will be driven up." he added.

A mid-sized fixed-asset investment project generally has a 25-to-30 month life-cycle, so it will take time for the stimulus package to take effect, he explained.

When asked where the record bank loans of 1.62 trillion yuan (US$238 billion) agreed in January had been directed, Mr. Su said the central bank is keeping track of the loans, but declined to elaborate.

There are concerns that some companies have diverted capital into the stock market to chase higher returns instead of chasing elusive demand by expanding production.

In an earlier interview with China.org.cn, Su said lenders had strictly reviewed the recipients of last month's loans to reduce risks.

Total bank lending in February is expected to decline to about 1 trillion yuan.

(China.org.cn March 12, 2009)