Economy

Gusts of inflationary winds are blowing in from China

Rising raw material prices will hit global consumers as Chinese manufacturers pass on increases

Slowing growth has left China’s economy spluttering like a wind farm in a soft breeze.

Factory output dipped in April while a surge in commodity prices stoked inflationary fears.

Already there are concerns that the cost of manufactured goods from washing machines to wind turbines will rise in the months ahead.

In turn, this will force up consumer prices with shoppers footing the bill.

Last month, the producer price index jumped by 6.8% compared to the same period last year. 

Hitting levels not seen since 2017, the number dwarfed March’s increase of 4.4%.

“The foundations for the domestic economic recovery are not yet secure,” Fu Linghui, a spokesman for the National Bureau of Statistics, told a media briefing on Monday.

The figures:

  • Industrial production increased by 9.8% last month compared to the same period last year.
  • But that slowed from the 14.1% surge in March.
  • Retail sales jumped by 17.7% year-on-year in April but again that was down from the 34.2% surge in March.
  • Fixed asset investment rose by 19.9% in the first four months year-on-year, slowing from 25.6% between January to March.
  • Private-sector fixed-asset investment also increased by 21% between January and April compared to the same period in 2020.
  • But that was down on the 26% jump in the first three months.
  • Private-sector fixed assets account for about 60% of total investment.

Economic health warning: The Covid-19 pandemic paralyzed China’s industry in the first four months of 2020, distorting this year’s data released by the National Bureau of Statistics. Also, the figures have not been verified by China Factor or an independent organization before their release.

Reaction to the news: “Economic growth likely peaked in Q1 on a quarter-on-quarter basis,” Zhiwei Zhang, the chief economist at Pinpoint Asset Management, said in a note.

Time lag: “Private consumption is expected to pick up going forward, but the April data shows it is still lagging,” Ho Woei Chen, an economist at Singapore’s United Overseas Bank, told the AFP news agency.

Delve deeper: The National Bureau of Statistics reported that the urban unemployment rate fell to 5.1% last month, down from 5.3% in March. But that figure does not include millions of migrant workers or rural areas. It also fails to take into account the “underemployed” or those on “short time” working at state-run enterprises.

Jobless fears: “We must continue to give priority to employment,” Premier Li Keqiang told a meeting of the powerful State Council last week.

China Factor comment: Rising raw material prices have increased manufacturing costs in China and will filter through the international supply chain. Eventually, they will be passed on to overseas consumers, fuelling global inflation. “[Chinese] producers are increasingly able to pass on higher raw material costs to overseas customers,” Frederic Neumann, the co-head of Asian Economics Research at HSBC, said as reported by the Reuters news agency.

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