In June, China’s Consumer Price Index (CPI) increased by 0.2% year-on-year, a 0.1 percentage point decrease compared to May. Of particular concern is the Producer Price Index (PPI) which saw a 0.8% year-on-year decrease. Experts note that the PPI has experienced multiple rounds of negative growth, with the majority of the past decade spent in contraction, reflecting China’s entry into a period of deflation and economic distress.
According to data released by the Chinese Communist Party’s National Bureau of Statistics on July 10th, China’s June Consumer Price Index (CPI) rose by 0.2% year-on-year, the lowest in three months. In May, the CPI increased by 0.3%. Food prices in June fell by 2.1%, with pork prices rising by 18.1% year-on-year.
The CPI decreased by 0.2% month-on-month, compared to a 0.1% decrease in May.
American economist Huang Dawei analyzed to Da Ji Yuan on July 11th, stating that if the weight of pork is excluded, China’s CPI not only remains sluggish but clearly indicates a certain degree of deflation. This proves that residents’ purchasing power continues to decline, along with a decrease in economic activity and social profitability.
In June, China’s Producer Price Index (PPI) decreased by 0.8% compared to the same period last year, a smaller decline than the 1.4% in May. From the previous month, the PPI shifted from a 0.2% increase to a 0.2% decrease.
While the decline in PPI is the smallest in 17 months, Reuters analysis attributes this to a lower base set last year. The Wall Street Journal points out that the Producer Price Index (PPI) has seen 21 consecutive months of negative growth.
Huang Dawei told Da Ji Yuan that this indicates a significant reduction in corporate orders, declining profitability, and the ongoing downturn of the overall economy. “We have yet to find the bottom of the economic downturn, let alone talk about recovery.”
Huang added that it is noteworthy that industrial PPI has seen a continuous decline for 21 months. Against the backdrop of increased subsidies for industries such as batteries, electric vehicles, and wind power generation, China faces accusations from Europe and the United States of excess capacity and dumping. Despite increased subsidy support for industries, the decline in PPI indicates an unchanged poor export situation.
“On the one hand, domestic consumption power has severely contracted, leading to a reduction in domestic orders. On the other hand, despite the large volume of exports, PPI continues to decrease, indicating a continuous decrease in high-value-added orders and an overall reduction in export scale.”
Chinese issues expert Wang He told Da Ji Yuan on July 11th that PPI, which reflects manufacturers’ ex-factory prices, indicates that companies sell goods cheaply due to limited profits, resulting in a lack of investment willingness and insufficient job creation. With lower profits, corporate income tax will also decrease, reflecting economic stagnation. He believes that many of the official Chinese government data may be manipulated but cannot be verified.
Wang commented that the ongoing 21-month period of negative growth in PPI will persist, citing China’s previous five rounds of prolonged negative growth in PPI. For example, the negative growth in PPI lasted 54 months from the year Xi Jinping took office in 2012, marking the third round of decline since Xi’s tenure.
“Since Xi Jinping took office, China’s economy has been plagued with a myriad of issues. The profitability of the entire Chinese manufacturing industry has become very limited.”
Wang further analyzed that while Xi Jinping initially proposed reform measures during the Third Plenary Session of the Eighteenth Central Committee of the Chinese Communist Party, stating the market should play a decisive role in resource allocation, little actual progress has been made. By the time of the Nineteenth National Congress, the entire policy began to shift leftwards, essentially stagnating the so-called reform and opening-up.
As reported by Economic Observer on June 13, over the past three decades, China’s PPI has experienced five prolonged periods of year-on-year negative growth. These periods in 1997-1999 (31 months), 2001-2002 (20 months), 2008-2009 (12 months), 2012-2016 (54 months), and 2019-2020 (18 months, with a brief positive growth in January 2020) total 135 months, with the current ongoing cycle lasting 21 months, summing up to 156 months of sustained negative growth.
Macro Economic Information Network published an article on June 21, 2024, by economist Yu Yongding titled “Is China’s Economy in a Deflationary Period?” It reflects on the past decade, indicating that China’s CPI and PPI signal the country’s entry into a deflationary period.
The article states that to determine if the economy is experiencing deflation, one should observe if the CPI continues to show negative growth year-on-year. While CPI briefly had negative growth in November 2020, it has mostly maintained a low level of positive growth over the past decade. In contrast, the continuous negative growth in PPI raises genuine concerns. For most of the past decade, China’s PPI has been in a state of negative growth.
The author points out that since 2010, China’s economic growth rate has continued to decline, with CPI growth mostly below developed countries’ 2% inflation target. The prolonged negative growth of PPI is an undeniable fact. Therefore, calling attention to deflation is entirely justified.
After the Chinese government adjusted its zero-clearance policy in December 2022, it was widely expected that the Chinese economy would rebound significantly in early 2023. However, this did not materialize. The Chinese Communist Party set the GDP growth target for 2023 at around 5%, creating the lowest historical growth target. This trend continues in 2024, a target still deemed exaggerated by external experts.
Wang commented that from 2011 to 2019, China’s official GDP growth rate continued to decline. After three years of the pandemic, the sustained negative growth in PPI indicates the extreme difficulty manufacturers face for survival. Coupled with the sluggish CPI, China’s economy exhibits signs of monetary tightening.
“The general public is unwilling to consume, and demand in society is very low. China’s overcapacity problem worsens, forcing exports at low prices, triggering strong international reactions leading to tariff disputes with other countries. Therefore, the situations of PPI and CPI both reflect the economic dilemma China is in,” he concluded.