China Cites Risk of Deflation, Overcapacity

The AP reports, via Forbes, on the state of the Chinese economy:

China is facing deflationary risks due to overcapacity in many industries amid a sharp downturn in demand, the central bank said in a report issued late Monday.

“Against the backdrop of shrinking general demand, the power to push up prices is weak and that for driving down prices is strong,” the People’s Bank of China said in its report on fourth quarter 2008 monetary policy.

“There exists a big risk of deflation,” said the report posted on the central bank’s Web site.