In September, China experienced an increased level of deflationary pressures, exacerbated by weaker than anticipated consumer and industrial prices. This situation emphasises the urgent need for Beijing to implement a more substantial measure of strategies to bolster the economy.
As China’s unpredictable markets remain in anticipation for elaborate information regarding Beijing’s stimulus proposals, a Ministry of Finance media briefing last Saturday pledged more expenditure yet provided little new numerical data.
According to the National Bureau of Statistics, China’s consumer price index rose by only 0.4% in September, less than what was predicted by the Bloomberg analyst survey which anticipated a gain of 0.6%. The producer prices index dropped by 2.8% compared to the predicted decline of 2.6% by analysts, marking the sharpest decline in six months.
Rising food prices, influenced by unfavourable weather conditions and the demand surge prior to the Golden Week holiday that commenced on the first of October, reinforced consumer inflation, says Goldman Sachs.
Diminished inflation figures emphasise the negative impact of deflationary pressures on China’s economy caused by a severe real estate crisis, affecting household demand.
Government data expected to be shared this week is predicted to reveal a dichotomy in the economy. Robust trade figures will likely be counterbalanced by frail third-quarter GDP figures due to be released on Friday.
Economists are forecasting a GDP growth for China’s third quarter that falls short of Beijing’s official target of a 5% increase year on year. If economic growth decelerates further and China begins to face additional economic challenges, such as rising protectionism from key trading counterparts, policymakers might be necessitated to initiate further measures.
Macquarie’s economist, Larry Hu states that escalating policy incentives will be required if the concurrent model cannot continue. Following many months of gradual measures, the central bank unveiled a more assertive monetary stimulus ahead of the national holiday, creating a surge in China’s previously stagnant stock markets.
Investors are still awaiting more specific plans regarding additional fiscal spending by Beijing to reinforce the monetary stimulus, but the lack of detail in follow-up government declarations has led to discontent.
Experts noted that while the commercial sectors are seeking a stronger commitment on stimulation from the government, Beijing is likely to eschew the proliferation of credit in the market. Previous attempts at stimulation are held responsible for instigating an inflated property market bubble.
The focus is shifting to the forthcoming leadership convening of China’s counterfeit parliament, the National People’s Congress. This body is technically responsible for authorising any additional fiscal measures, with an assembly expected within the following weeks.
The statistical bureau indicated that the faltering producer prices were the outcome of a downturn in industries like ferrous metal smelting and rolling, with a year on year reduction of 11 percent, as well as the fossil fuel processing sectors, recording a downturn of 9.4 percent. Consumer goods’ factory prices also saw a decline by 1.3 percent.
With regards to consumer prices, the bureau narrated a decrease in prices of new energy cars – electric vehicles – and traditionally motorised vehicles, falling by 6.9 percent and 6.1 percent respectively.
China’s car market is renowned for fierce rivalry and surplus production capabilities, prompting numerous manufacturers to amplify low-priced exports. – Copyright The Financial Times Limited 2024.