Chinese premier under pressure to stimulate economy

China’s producer-price index, measuring prices at factory gate, fell 5.4 per cent in July

Chinese premier Li Keqiang: Photograph: Mark Schiefelbein – Pool/Getty Images
Chinese premier Li Keqiang: Photograph: Mark Schiefelbein – Pool/Getty Images

Producer prices in China fell last month to their lowest level since the immediate aftermath of the global financial crisis, and exports floundered, adding to pressure on premier Li Keqiang to stimulate the economy.

China’s producer-price index, which measures costs for goods at the factory gate, fell 5.4 per cent year-on-year in July, according to a report from the National Bureau of Statistics (NBS). It follows a fall of 4.8 per cent a month earlier.

It’s a sign of weak demand at home and abroad for the fruits of China’s industrial sector.

The world’s second-largest economy is officially targeted to grow 7 per cent this year, though some analysts believe the figure will be tough to reach.

READ SOME MORE

Interest rates

The People’s Bank of China has lowered interest rates four times since November in an effort to shore up expansion at its lowest rate in three decades. The weak data seem to suggest that interest-rate cuts and efforts to stabilise local government debt have not translated into recovery.

However, the bank urged the government to continue with reforms. “The economy is still relatively reliant on policies intended to stabilise growth and on government-led investment,” the central bank said in a 64-page report issued on Friday. China’s imports fell 8.6 per cent in July, while exports fell 8.9 per cent.

Major commodity prices are mired at multi-year lows, the economy is struggling with industrial overcapacity and weak demand and there are no signs of quick recovery.

Factory-gate prices of excavated oil and natural gas slid 34.6 per cent in July, while those of ferrous metal fell by a hefty 20.1 per cent, according to the NBS.

Pork is a key component in the diet and the importance of pig meat to the consumer-price index basket was reflected in a 1.6 per cent year-on-year rise in the CPI, offsetting sluggish growth in the cost of non-food items. Non-food consumer prices rose 1.1 per cent year on year, down from 1.2 per cent in June. Pork prices were up 16.7 per cent in July from a year earlier, according to the NBS.

"Domestic demand remained sluggish, and commodity prices were on the decline. China still faces grim deflation risk," said HSBC's chief China economist Qu Hongbin.

Foreign trade

Trade data published by the General Administration of Customs on Saturday showed that foreign trade dropped 7.3 per cent year on year to 13.63 trillion yuan (€2 trillion) in the first seven months of this year.

Exports edged down 0.9 per cent from a year ago to 7.75 trillion yuan, and imports slumped 14.6 per cent to 5.88 trillion yuan.

China’s trade surplus doubled to hit 1.87 trillion yuan in the January to July period.

NBS statistician Yu Qiumei said the producer-price index contraction was chiefly down to the falling prices of industrial products and decreasing costs of oil and natural gas.

The World Bank has forecast that energy prices will average 39 per cent below 2014 levels this year, with metal prices down 16 per cent and iron ore sliding 43 per cent.

Trade with the EU, China’s largest trade partner, slipped 7.6 per cent year on year in the first seven months to 1.98 trillion yuan, with exports dropping 4.4 per cent to 1.22 trillion yuan and imports down 12.4 per cent to 757.32 billion yuan.

Trade with Japan fell 11.1 per cent, but trade with the US rose 2.7 per cent on the back of increased exports.

Clifford Coonan

Clifford Coonan

Clifford Coonan, an Irish Times contributor, spent 15 years reporting from Beijing