China’s pro­ducer prices rise for 1st time in nearly 5 years

Con­sumer prices also pick up more than ex­pected

Kuwait Times - - BUSINESS -

China’s pro­ducer prices un­ex­pect­edly rose in Septem­ber for the first time in nearly five years thanks to higher com­mod­ity prices, wel­come news for the gov­ern­ment as it strug­gles to whit­tle down a grow­ing moun­tain of cor­po­rate debt. Of­fi­cial in­fla­tion data yes­ter­day also showed a pickup in con­sumer prices, help­ing to ease in­vestors’ con­cerns about the health of the world’s sec­ond-largest econ­omy af­ter dis­ap­point­ing trade num­bers on Thurs­day rat­tled global mar­kets.

Cor­po­rate China sits on $18 tril­lion in debt, equiv­a­lent to about 169 per­cent of gross do­mes­tic prod­uct (GDP), ac­cord­ing to the most re­cent fig­ures from the Bank for In­ter­na­tional Set­tle­ments. Most of it is held by state-owned com­pa­nies. “An uptick in in­fla­tion, if sus­tained, would be good news for China’s abil­ity to ser­vice its over­hang of cor­po­rate debt,” Bill Adams, se­nior in­ter­na­tional econ­o­mist at PNC Fi­nan­cial Ser­vice Group, said in a note. “With low in­ter­est rates keep­ing debt ser­vice costs in check and pro­ducer prices ris­ing, the out­look for Chinese in­dus­trial prof­its is im­prov­ing.” The pro­ducer price in­dex (PPI) rose 0.1 per­cent in Septem­ber from a year ear­lier, the Na­tional Bureau of Statis­tics said.

While the gain was slight, it was the first time pro­ducer prices have ex­panded on an an­nual ba­sis since Jan­uary 2012, and came a bit ear­lier than the year-end time­frame that some an­a­lysts had ex­pected. Pro­ducer prices had edged up on month-on-month ba­sis over the sum­mer. An­a­lysts polled by Reuters had pre­dicted a de­cline of just 0.3 per­cent on-year, af­ter a drop of 0.8 per­cent in Au­gust. China’s fac­tory prices have been fall­ing since March 2012, and more than four years of pro­ducer price de­fla­tion have squeezed in­dus­trial com­pa­nies’ cash flow.

Prof­its at roughly a quar­ter of Chinese com­pa­nies were too low in the first half of this year to cover their debt ser­vic­ing obli­ga­tions, as earn­ings lan­guish and loan bur­dens in­crease, ac­cord­ing to a re­cent Reuters anal­y­sis. How­ever, a con­struc­tion boom, fu­eled by a gov­ern­ment in­fra­struc­ture spend­ing spree and a hous­ing rally, have helped boost prices for build­ing ma­te­ri­als from steel to cop­per in re­cent months, while coal prices have jumped as the gov­ern­ment tries to shut ex­cess min­ing ca­pac­ity.

Prices of fer­rous met­als, non-fer­rous met­als and coal min­ing to­gether rose 4.1 per­cent on-year, a key fac­tor in the PPI turn­ing pos­i­tive, the statis­tics bureau said. The num­ber of in­dus­tries reg­is­ter­ing price in­creases also rose to 25, eight more than the pre­vi­ous month, in­di­cat­ing that a re­cov­ery in Chinese com­pa­nies’ pric­ing power was be­com­ing more broad-based. “Debt pres­sure will cer­tainly be re­duced,” said Zhou Hao, an­a­lyst at Com­merzbank AG in Singapore. But he cau­tioned that China’s mount­ing debt is also a struc­tural prob­lem, and that higher prices for com­modi­ties such as coal and steel may be “spec­u­la­tive” in na­ture. Con­sumer prices also pick up Con­sumer price in­fla­tion also quick­ened more than ex­pected to 1.9 per­cent in Septem­ber year-on-year, mainly due to higher food prices. Food prices were up 3.2 per­cent in Septem­ber on-year, com­pared with 1.3 per­cent in Au­gust. An­a­lysts had ex­pected the con­sumer price in­dex (CPI) to rise 1.6 per­cent from 1.3 per­cent in Au­gust, a 10-month low. “A re­bound in CPI growth is largely due to sea­sonal fac­tors, and the over­all growth trend is quite sta­ble. It also dis­missed pre­vi­ous con­cerns of de­fla­tion risks,” said Zhang Yongjun, an­a­lyst at the China In­ter­na­tional Cen­tre For Eco­nomic & Tech­ni­cal Ex­changes.

The end of de­fla­tion is likely to dash any lin­ger­ing ex­pec­ta­tions of fur­ther cuts in Chinese in­ter­est rates or banks’ re­serve ra­tios, econ­o­mists at ANZ said. The odds of such moves by the Peo­ple’s Bank of China (PBOC) had al­ready been seen as rapidly re­ced­ing due to grow­ing con­cerns in the gov­ern­ment about rapidly ris­ing debt lev­els and po­ten­tial as­set bub­bles.

“How­ever, we do not ex­pect the PBoC to tighten liq­uid­ity soon ei­ther,” ANZ said in a note. “The PBoC should be bal­anc­ing the yuan ex­change rate, delever­ag­ing, and the con­cerns around a slow­ing econ­omy.”—Reuters

JIANGXI: Chinese cus­tomers select veg­eta­bles at a su­per­mar­ket in Ji­u­jiang, east China’s Jiangxi prov­ince yes­ter­day. — AFP

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