Costs of public services may be raised as nation’s deflation risks grow
China’s public sector is under pressure to raise prices on services such as train tickets and utilities, amid tight local finances and a prolonged period of deflationary risks, analysts have said.
The consumer price index (CPI), a key gauge of inflation, grew by 0.3 per cent year on year in April, compared with an increase of 0.1 per cent in March, the National Bureau of Statistics said yesterday.
Meanwhile, China’s producer price index – which measures the cost of goods at the factory gate – declined for the 19th straight month in April, dropping 2.5 per cent year on year, compared with a fall of 2.8 per cent in March. Unlike many Western countries that are troubled by lingering high inflation, China’s has seen its CPI hovering around zero since April last year, fuelling deflation fears. The reading last month remained far below the government control target of 3 per cent, providing room for the authorities to increase prices. In April, the price of utilities went up by 0.6 per cent from a year before, compared with a 0.5 per cent rise a month earlier. The price for vehicle fuels, meanwhile, increased by 6.9 per cent year on year last month, up from a rise of 2.2 per cent in March. Healthcare charges also rose by 1.9 per cent last month, compared with an increase of 1.7 per cent a month earlier.
A persistent property slump had left local governments debt-ridden and given them a reason to increase the cost of public services, analysts said.
China Railway, the stateowned operator of the country’s massive high-speed network, announced last week a price increase of around 20 per cent on four of its major high-speed lines.
The fare increase, which will take effect from June 15, covers some busy routes including between Shanghai and Hangzhou, as well as between Wuhan and Guangzhou.
Last year, China Railway reported a net profit of 3.3 billion yuan (HK$3.6 billion) after a prolonged period of heavy losses because of the effects of the coronavirus pandemic.
Its operating revenue rose by 10.6 per cent to 1.25 trillion yuan in 2023, while total liabilities rose to 6.13 trillion yuan from 6.11 trillion yuan, according to its annual report, which was released at the end of April.
Last Thursday, Guangzhou held a public hearing on increasing tap water prices, citing the need to “compensate the cost of urban water supply enterprises” as prices had remained unchanged since 2012.
The municipal government announced two plans to upgrade its tiered pricing mechanism.
The proposals entailed a rise of either 24 per cent or 30 per cent from the current 1.98 yuan per cubic metre charge for most households.
The price increase is expected to lift revenues from water sales by about 1.175 billion yuan per year, according to the municipal government.
“This is a necessary step as the government’s main sources of public spending – land sales and tax revenues – are facing prolonged negative growth, while the cost of public services is rising,” said Peng Peng, executive chairman of the Guangdong Society of Reform.
“The extended downturn in the housing market has led to stagnant consumer prices, so the government is trying to counter the risk of deflation by proactively raising the prices of public services.
“Price rises are alleviating local government debt pressures.
“With market confidence gradually warming up and deflation easing, increasing CPI means the prices of public services are expected to continue rising in the future.”