China’s Deflation Pressures Ease, More Steps Expected to Spur Demand

A woman shops at a shoes shop in Beijing, China, 07 September 2023. (EPA)
A woman shops at a shoes shop in Beijing, China, 07 September 2023. (EPA)
TT

China’s Deflation Pressures Ease, More Steps Expected to Spur Demand

A woman shops at a shoes shop in Beijing, China, 07 September 2023. (EPA)
A woman shops at a shoes shop in Beijing, China, 07 September 2023. (EPA)

China's consumer prices returned to positive territory in August while factory-gate price declines slowed, data showed on Saturday, as deflation pressures ease amid signs of stabilization in the economy.

But analysts say more policy support is needed to shore up consumer demand in the world's second-biggest economy, with a labor market recovery slowing and household income expectations uncertain.

The consumer price index (CPI) rose 0.1% in August from a year earlier, the National Bureau of Statistics said, slower than the median estimate for a 0.2% increase in a Reuters poll. CPI fell 0.3% in July.

Core inflation, which excludes food and fuel prices, was unchanged at 0.8% in August.

The producer price index (PPI) fell 3.0% from a year earlier, in line with expectations, after a drop of 4.4% in July. The drop in factory prices was the smallest in five months.

"There is a bit of improvement in the inflation profile. In the meantime, the PPI deflation appears to be narrowing, pointing to a slow and moderate restoring process," said Zhou Hao, chief economist at Guotai Junan International.

"In general, the inflation (rate) still points to weak demand and requires more policy support for the foreseeable future."

Food prices fell 1.7% on year while non-food costs rose 0.5% - led by rising costs linked to tourism, the bureau said.

Recent floods have damaged corn and rice crops in China's key northern grain-producing belt, sparking domestic food inflation fears as consumers worldwide face tightening food supplies caused by the war in Ukraine.

"Both CPI and PPI are likely to show modest improvements in the fourth quarter," said Luo Yunfeng, an economist at Huajin Securities.

Deflation pressures

Compared with the previous month, CPI rose 0.3%, picking up from 0.2% in July, the statistics bureau said.

Factory-gate deflation moderated in August due to improving demand for some industrial products and rising international crude oil prices, the statistics bureau said.

China's anemic price changes contrast sharply with the surging inflation most other major economies have seen since the COVID-19 pandemic waned, forcing their central banks to rapidly raise interest rates.

China in July became the first of the Group of 20 wealthy nations to report a year-on-year decline in consumer prices since Japan's last negative headline CPI reading in August 2021.

August trade data showed China's exports and imports both narrowing their declines, joining a run of other indicators showing a possible stabilization in the economic downturn, as policymakers seek to spur demand and fend off deflation.

"With early signs of growth stabilization, we see deflationary pressures easing, a trend reflected in higher commodity prices in August," ANZ analysts said in a note.

Beijing has announced a series of measures in recent months to shore up growth, including mortgage rate cuts and the easing of borrowing rules last week by the authorities to aid home-buyers.

China's central bank could continue to cut interest rates and bank reserve requirement ratios, said Bruce Pang, chief economist at Jones Lang Lasalle.

Premier Li Qiang said this week that China is expected to achieve its 2023 growth target of around 5%, but some analysts believe the target could be missed due to a worsening property slump, weak consumer spending and tumbling credit growth.



China Mulls Draft Law to Promote Private Sector Development

A Chinese national flag flutters on a financial street in Beijing. (Reuters)
A Chinese national flag flutters on a financial street in Beijing. (Reuters)
TT

China Mulls Draft Law to Promote Private Sector Development

A Chinese national flag flutters on a financial street in Beijing. (Reuters)
A Chinese national flag flutters on a financial street in Beijing. (Reuters)

Chinese lawmakers are deliberating a draft of the country's first basic law specifically focused on the development of the private sector, the country’s Xinhua news agency reported.

“The law will be conducive to creating a law-based environment that is favorable to the growth of all economic sectors, including the private sector,” said Justice Minister He Rong, while explaining the draft on Saturday during the ongoing session of the Standing Committee of the National People's Congress, the national legislature.

The draft private sector promotion law covers areas such as fair competition, investment and financing environments, scientific and technological innovation, regulatory guidance, service support, rights and interests protection and legal liabilities.

The draft has incorporated suggestions solicited from representatives of the private sector, experts, scholars and the general public, the minister said.

China left its benchmark lending rates unchanged as expected at the monthly fixing on Friday.

Persistent deflationary pressure and tepid credit demand call for more stimulus to aid the broad economy, but narrowing interest margin on the back of fast falling yields and a weakening yuan limit the scope for immediate monetary easing.

The one-year loan prime rate (LPR) was kept at 3.10%, while the five-year LPR was unchanged at 3.60%.

In a Reuters poll of 27 market participants conducted this week, all respondents expected both rates to stay unchanged.

Morgan Stanley said in a note that the 2025 budget deficit and mix are more positive than expected and suggest Beijing is willing to set a high growth target and record fiscal budget to boost market confidence, but further policy details are unlikely before March.

Last Friday, data released by the country's central bank said total assets of China's financial institutions had risen to 489.15 trillion yuan (about $68.03 trillion) by the end of third quarter this year.

The figure represented a year-on-year increase of 8%, said the People's Bank of China.

Of the total, the assets of the banking sector reached 439.52 trillion yuan, up 7.3% year on year, while the assets of securities institutions rose 8.7% year on year to 14.64 trillion yuan.

The insurance sector's assets jumped 18.3% year on year to 35 trillion yuan, the data showed.

The liabilities of the financial institutions totaled 446.51 trillion yuan, up 8% year on year, according to the central bank.

Separately, data released by the National Energy Administration on Thursday showed that China's electricity consumption, a key barometer of economic activity, rose by 7.1% year on year in the first 11months of the year.

During the period, power consumption of the country's primary industries increased by 6.8% year on year, while that of its secondary and tertiary sectors rose by 5.3% and 10.4%, respectively.

Residential power usage saw strong growth of 11.6% during this period, the administration said.

In November alone, power usage climbed 2.8% from one year earlier, according to the data.