China’s producer prices extend decline amid sluggish demand
Signs of a pickup in some parts of the industrial sector suggest a slow economic recovery remains intact in the country
China’s factory gate prices fell for a fith straight month in June as the coronavirus pandemic weighed heavily on industrial demand, although signs of a pickup in some parts of the sector suggest a slow economic recovery remains intact.
The producer price index (PPI) in June fell 3.0% from a year earlier, China’s National Bureau of Statistics (NBS) said in a statement on Thursday, slower than a 3.2% fall tipped by a Reuters poll of analysts and a 3.7% decline in May.
However, in a sign of potential improvement in the manufacturing sector, PPI rose 0.4% from the previous month, turning around from a 0.4% decline in May.
Meanwhile, the World Artificial Intelligence Conference (WAIC) kicked off on Thursday in Shanghai, with over 500 companies and agencies participating in the event on the theme of ‘Intelligent World, Indivisible Community’.
The event covers a wide range of exhibitors from home and abroad, including technology giants, such as Microsot, Amazon, Alibaba, Tencent, Huawei, SAIC and Chinese telecom operators.
The conference focuses on AI chips innovation, 5G, intelligent management of data, AI applications in law enforcement, financing, unmanned driving, education, healthcare and other sectors. “The change was driven by an across-the-board increase in raw materials, manufactured goods and consumer goods price inflation,” said Martin Rasmussen, China Economist at Capital Economics, in a note ater the data release.
“With fiscal stimulus and infrastructure spending still ramping up, we think that economic activity and producer prices are set to recover further in the coming months.”
Indeed, orders for infrastructure materials and equipment have helped industrial output recover faster in China than most places emerging from COVID-19 lockdowns, but further expansion will be hard to atain without stronger broad-based demand and exports.
ANZ expects China’s PPI will stay in deflation this year, with declines averaging around 2.0% due to the prolonged pandemic.
Even with signs of a moderation in China’s upstream deflation, “it remains debatable if the unprecedented extent of policy stimulus will lead to a quick rebound in industrial inflation,” said Zhaopeng Xing, China Markets Economist at ANZ.
An official survey on the manufacturing sector last week showed activity expanded in June although still at a modest pace, as Beijing’s success in drastically reducing the number of new coronavirus infections allowed it to reopen its economy.
But export orders have continued to contract, reflecting the widespread global impact of the COVID-19 pandemic. Many Chinese manufacturers are grappling with falling profits and have been forced to let workers go to cut costs.
The pandemic, which has infected more than 12 million and killed about 546,000 globally, has sunk world demand and sent many economies into deflation as factories and retailers shut their doors.
The inflation data also showed consumer prices rose 2.5% from a year earlier, in line with forecasts and slightly faster from 2.4% growth in May.
Core inflation - which excludes food and energy costs - remained benign last month at 0.9%_easing from May’s rise of 1.1%.
Some analysts have recently warned of inflationary pressures from the heavy floods across a large part of the country this summer, which could hit vegetable supplies and drive a surge in prices.
China’s economy is expected to return to growth in the second quarter, as it recovers from the sharp contraction in the January-march quarter when the coronavirus outbreak in the mainland reached its peak.
Seperately, investors in China’s soaring stock market are increasingly turning to Hong Kong for bargains, egging on an investment boom on the back of large tech listings and shaking off fears of political risks in the bruised financial hub.
The country’s blue-chip CSI300 index hit five-year-highs in recent sessions on a stateendorsed rally and a retail trading frenzy.
But Chinese investors and brokerages say they are increasingly drawn by Hong Kong shares, whose gains have been more modest.
“Elephants are dancing (in mainland China), but in Hong Kong, many stocks are lying on the floor,” Shen Weizheng, senior advisor at brokerage Direct Access, said during an online pitch to mainland investors on Wednesday.
“Buy more Hong Kong stocks. You don’t lose money buying bargains.”