China is keep­ing in­fla­tion un­der con­trol

China Daily (Canada) - - ACROSS AMERICA - By MICHAEL BARRIS in New York, CHEN JIA in Bei­jing and YU RAN in Shang­hai

China’s slow­ing in­fla­tion rate, com­bined with man­u­fac­tur­ing over­ca­pac­ity, low­ers ex­pec­ta­tions of any im­mi­nent change in the coun­try’s tight mone­tary pol­icy, econ­o­mists said.

How­ever, one econ­o­mist said that the steady con­trac­tion in pro­ducer prices over the past two years sig­nals se­ri­ous over­ca­pac­ity is­sues in China’s man­u­fac­tur­ing in­dus­try, in­di­cat­ing that 2014 will bring a slow­down in man­u­fac­tur­ing in­vest­ment.

The Con­sumer Price In­dex, a widely watched gauge of in­fla­tion that mea­sures changes in the price level of a mar­ket bas­ket of con­sumer goods and ser­vices pur­chased by house­holds, was 2.6 per­cent last year — the same as in 2012, the Na­tional Bureau of Sta­tis­tics said on Thurs­day. The gov­ern­ment had set a ful­lyear tar­get of 3.5 per­cent at the be­gin­ning of 2013.

For De­cem­ber, con­sumer in­fla­tion fell to a seven-month low, 2.5 per­cent, from 3 per­cent in Novem­ber and 3.2 per­cent in Oc­to­ber, driven by in­cre­men­tal in­creases in food prices.

De­cem­ber food prices in­creased 4.1 per­cent on av­er­age, less than Novem­ber’s 5.9 per­cent in­crease.

Sophii Weng, a New York­based econ­o­mist with Stan­dard Char­tered Bank, told China Daily in an e-mail that she is “not con­cerned about in­fla­tion in 2014 for China”. She said she ex­pected ac­cel­er­at­ing food in­fla­tion to push con­sumer prices mod­er­ately higher in 2014, “which will help the Peo­ple’s Bank of China con­tinue with its tighter mone­tary pol­icy”.

She at­trib­uted slow­ing con­sumer-price in­fla­tion in De­cem­ber to a be­nign growth rate, as well as the cen­tral gov­ern­ment’s crack­down on pub­lic-sec­tor spend­ing on foods and gifts. She said she ex­pects “mildly higher” in­fla­tion in the first half of this year.

Yingy­ing Xu, an econ­o­mist with the Man­u­fac­tur­ers Al­liance for Pro­duc­tiv­ity and In­no­va­tion in Vir­ginia, echoed Weng, say­ing, “This year we don’t re­ally ex­pect to see a big jump in the in­fla­tion rate (in China)”.

“The in­fla­tion level is un­der con­trol at this mo­ment. It doesn’t pose an im­me­di­ate threat to the (coun­try’s) growth, or mone­tary pol­icy,” Xu said.

Re­flect­ing the slow­down in China’s econ­omy, De­cem­ber fac­tory-gate prices of in­dus­trial goods fell for the 22nd straight month — con­tin­u­ing China’s long­est pe­riod of man­u­fac­tur­ing de­fla­tion since the 1990s.

The Pro­ducer Price In­dex, which mea­sures the av­er­age change in prices re­ceived by in­dus­trial goods producers, dropped 1.4 per­cent in De­cem­ber from a year ear­lier, match­ing Novem­ber’s de­cline and be­low Oc­to­ber’s 1.5 per­cent drop, the sta­tis­tics bureau said. For 2013, PPI fell 1.9 per­cent, more than 2012’s 1.72 per­cent drop.

Xu said the PPI’s steady con­trac­tion in the past two years sig­nals that over­ca­pac­ity in China’s man­u­fac­tur­ing in­dus­try, par­tic­u­larly in met­als man­u­fac­tur­ing, is “re­ally bad” — and points to a slow­down in 2014 man­u­fac­tur­ing in­vest­ment.

De­spite the prospect of pos­si­ble job losses as man­u­fac­tur­ing in­vest­ment slows down — some plant shut­downs are ex­pected in the over-pro­duc­ing steel in­dus­try, for ex­am­ple — the gov­ern­ment’s tran­si­tion to an eco­nomic model that re-em­pha­sizes the ser­vice sec­tor may help off­set the de­cline in job-cre­ation, Xu said.

“At this stage, China’s in­vest­ment in the man­u­fac­tur­ing in­dus­try is re­ally cap­i­tal-in­ten­sive,” she said. “The amount of jobs it cre­ated is not as many as 15 years ago, when China still had a huge sur­plus of low-wage and un­skilled la­bor.

“Nowa­days when the work­ing age pop­u­la­tion is de­clin­ing it ac­tu­ally has a la­bor short­age. So the re­bal­anc­ing helps to ease the sig­nif­i­cant wage growth in the man­u­fac­tur­ing sec­tor.”

“The de­vel­op­ment of the ser­vice sec­tor can ac­tu­ally pro­duce more jobs than the man­u­fac­tur­ing sec­tor,” Xu said.

Nev­er­the­less, China’s man­u­fac­tur­ing en­ter­prises are feel­ing the ef­fects of the eco­nomic slow­down. Zhang Guan­jin, gen­eral man­ager of Shaox­ing Jiny­ong Tex­tile in Zhejiang prov­ince, said ex­port or­ders fell in 2013.

“The com­pany re­ceived sig­nif­i­cantly fewer (over­seas) or­ders, with nearly 10 per­cent of reg­u­lar clients not plac­ing any new or­ders last year,” he said.

Zhang said he doesn’t ex­pect con­di­tions to im­prove for two or three years be­cause of the slow global re­cov­ery and in­creas­ing la­bor and raw ma­te­ri­als costs. He said he is fo­cus­ing on ex­pand­ing in the do­mes­tic mar­ket rather than look­ing be­yond China’s bor­ders.

Chang Jian, chief econ­o­mist in China at Bar­clays Cap­i­tal, said weak in­dus­trial pro­duc­tion may point to an eas­ing of GDP growth mo­men­tum. Chang pre­dicts that the GDP growth rate for the fourth quar­ter is likely to be 7.6 per­cent, down from 7.8 per­cent in the third quar­ter, bring­ing 2013 growth to 7.7 per­cent.

That would be the slow­est growth pace since 1990 and just above the 7.5 per­cent goal set by the gov­ern­ment for the year.

Xu Hong­cai, a se­nior econ­o­mist at the China Center for In­ter­na­tional Eco­nomic Ex­changes, said that with­out a new driv­ing force for the econ­omy in the short term, the GDP growth rate may con­tinue to mod­er­ate.

“We can ex­pect more mar­ket vi­tal­ity to be stim­u­lated by the re­form mea­sures, es­pe­cially in the fi­nan­cial sys­tem, and ex­pect high-qual­ity and sus­tain­able de­vel­op­ment in the long run,” Xu said. Con­tact writ­ers at michael­bar­ris@chi­nadai­

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