Monday, September 17, 2012

Deflationary Pressures Increase in China

While the money supply growth is considered high enough to prevent deflation, other measures, such as PPI, industrial output and profits are flashing warnings. Industrial output and profits are expected to continue downward through the autumn. China’s Deflation Rears Its Ugly Head
The Producer Price Index, an indicator of production output prices, retreated to its lowest level in August since November 2009, a fall of 3.5 per cent from a year earlier. It was the sixth consecutive monthly decline as it reached its lowest level in 34 months.

When PPI declined 2.9 per cent year-on-year in July, it was a warning that manufacturing companies’ income had dropped rapidly, a development that might hold back additional investment in industrial sectors and further drag down the whole economy.
In the first seven months of this year total profits of big industrial enterprises declined by 2.7 per cent from the same period in 2011 to 2.68 trillion yuan.
“Fundamental problems in the Chinese economy are starting to show and the downside risk is very hard to control,” Yuan said pessimistically.

Uncertainty over overseas demand, retreating governmental supportive policies and tightening property control have all pushed the industrial companies into a chilling environment. However, deeper problems, such as the increase in labour costs and the slumping competitiveness of Chinese business, should be given more attention, Yuan said.

No comments: