Chinese lawmakers face mounting pressure to support economic growth after an unexpectedly large drop in exports last month and the steepest decline in producer prices in almost six years.
China’s producer price index fell 5.4 percent year-on-year last month, according to Chinese National Bureau of Statistics (NBS) data released yesterday.
The decline — the biggest since October 2009 — came on the heels of trade data on Saturday that showed exports last month shrank 8.3 percent from a year earlier, compared with an estimated decline of 1.5 percent.
The data indicate weak domestic and international demand for Chinese factory products and suggest that interest rate cuts and efforts to stabilize local government finances have yet to spark a recovery.
The People’s Bank of China has lowered interest rates four times since November last year to support an economy expected to grow this year at the slowest pace since 1990.
“The goal this year is to sustain growth, so policies will continue to stimulate demand,” Commerzbank AG economist Zhou Hao (周皓) said.
Maintaining an economic expansion of about 7 percent poses a challenge because the financial sector cannot be expected to surge in the second half like it did during the recent stock market boom, Liu Ligang and Louis Lam, analysts at Australia & New Zealand Banking Group Ltd (ANZ) wrote in a note yesterday.
Chinese stocks have lost almost US$4 trillion in market value since their mid-June peak.
“Monetary policy will need to become more supportive,” the ANZ analysts said.
They forecast another interest rate reduction this quarter, as well as a cut of 50 basis points to the portion of deposits that lenders must hold in reserve.
The slump in exports “compounds downward pressure on China’s economy and threatens to bring exchange rate depreciation onto the table as a tool to restore competitiveness,” Bloomberg Intelligence chief Asia economist Tom Orlik wrote in a research note on Saturday.
The Chinese Central Bank has held a vice-like grip on the yuan, allowing it little movement in the onshore market. The currency’s closing levels in Shanghai last week matched the tightest range recorded since a fixed exchange rate ended a decade ago.
In its quarterly monetary policy report released on Friday, the central bank said it would let the market play a bigger role in setting exchange rates while keeping them “at a reasonable equilibrium level.”
Factory-gate prices of excavated oil and natural gas dropped 34.6 percent last month, while those of ferrous metal fell 20.1 percent, according to the NBS. Non-food consumer prices rose 1.1 percent year-on-year, down from 1.2 percent in June.
Overall, the consumer price index increased 1.6 percent from the year-earlier period, as a surge in pork prices offset sluggish growth in the cost of non-food items. The price of meat leaped 16.7 percent last month from a year earlier, according to the NBS.
However, the pork-led pickup is unlikely to cause the central bank to change tactics.
“Monetary policies will not change with the price of individual commodities, but will observe the general price trends,” the central bank said in a policy report.
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