China’s Inflation Problem? It Has None
Falling prices at the factory gate and subdued increases in the costs of consumer goods contrast with searing inflation in many countries
3 min
SINGAPORE—As Western central banks continue to jack up interest rates in an effort to douse stubbornly high inflation, China faces a growing risk of the opposite problem—deflation.
Prices charged by Chinese factories tumbled in May at their steepest annual pace in seven years, while consumer prices barely budged, fresh signs of the challenges faced by the world’s second-largest economy both at home and abroad.
Economists say the absence of inflationary pressure means China could experience a spell of deflation—a widespread fall in prices—if the economy doesn’t pick up soon.
Persistent deflation tends to throttle growth and can be difficult to escape. While a prolonged period of falling prices probably isn’t in the cards, Chinese policy makers will nonetheless need to do more to stave off that risk and get the economy motoring again, economists say, perhaps by trimming interest rates, weakening the currency or offering cash or other spending inducements to households and businesses.
Ting Lu, chief China economist at Nomura in Hong Kong, said in a note to clients Friday that he expects local banks to cut key lending rates as soon as next week.
In remarks made at a meeting Wednesday and published by China’s central bank after the release of monthly inflation data Friday, central-bank Gov. Yi Gang said he expects consumer-price inflation to edge up in the second half of the year and exceed 1% in December. He said the People’s Bank of China would use its tools to support the economy and promote employment.
Falling prices in China aren’t necessarily bad news for the global economy, as lower costs to import Chinese goods should help bring down inflation rates that for many economies are still uncomfortably high.
“In a sense, China is already exporting deflation to the world,” said Carlos Casanova, senior Asia economist at Union Bancaire Privée in Hong Kong. That could help ease the pressure on the U.S. Federal Reserve and other central banks that are battling to bring down inflation, he said.
China’s producer prices—what companies charge at the factory gate—fell 4.6% from a year earlier in May, the weakest reading since early 2016 and the eighth straight month of declines.
Consumer prices rose just 0.2%, China’s National Bureau of Statistics said Friday, slightly higher than the 0.1% annual gain recorded in April but still well below the 3% ceiling for annual inflation set by the government and central bank.
In the U.S., consumer-price inflation in April slowed to a 4.9% annual rate, but that was still more than double the Federal Reserve’s 2% goal. In the 20 nations that use the euro, annual inflation was 6.1% in May.
After soaring last year in the wake of Russia’s invasion of Ukraine, prices of crude oil, food and some other commodities have pulled back, partly leading to China’s subdued inflation.
But also behind China’s predicament, which stands in contrast to the experience of most other economies as they emerged from the Covid-19 pandemic, is a shortfall in spending both domestically and from overseas.
Chinese factories are cutting prices because foreigners aren’t buying their goods with the same gusto as before central banks started ratcheting up borrowing costs. A hoped for consumer spending binge that was supposed to propel growth in China hasn’t materialised. Real estate is in the doldrums, crushing investment.
Western policy makers and economists are exploring whether fat corporate profit margins are stoking inflation in their economies. In China, industrial profits are sinking.
The inflation data adds to a string of disappointing signals on the strength of China’s recovery, which had been expected to power global growth this year after Beijing ditched its draconian Covid controls at the close of 2022.
Chinese exports fell in May from a year earlier, the first annual decline in overseas shipments in three months. Business surveys showed factory activity shrank in May and services-sector activity softened. More than a fifth of young people are unemployed.
Still, most economists think China will meet or exceed the government’s goal of growing the economy by 5% or more this year, given the weak base of comparison with 2022, when sporadic lockdowns in major cities hammered the economy.
Zichun Huang, China economist at Capital Economics, said she doesn’t think China will experience broad deflation and expects consumer price growth to pick up in the coming months thanks to support from policy makers and an improving labor market.
—Grace Zhu in Beijing contributed to this article.
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Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
This agreement aims to foster the development of robust partnerships between the communities of both regions.
4 min
The Australian Chamber of Commerce and Industry has recently signed a Memorandum of Understanding (MoU) with the Dubai Chambers, marking a significant step towards enhancing cooperation and strengthening economic and trade relations between Dubai and Australia. This strategic agreement aims to foster the development of robust partnerships between the business communities in both regions.
In today’s interview, we will delve with Mr. Lyall Gorman, Vice President of the Australian Chamber of Commerce and Industry, into the objectives and anticipated impacts of this MoU, explore the key initiatives and projects that will arise from this collaboration, and discuss the potential challenges and strategies for overcoming them.
We will also look into how this agreement aligns with the broader strategic goals of the Australian Chamber of Commerce and Industry and the future of trade relations between Australia and the Middle East.
Can you give us a brief overview of the MoU signed with the Dubai Chamber? What are the main objectives?
The MoU we signed is designed for the two chambers to collaborate for mutual benefit and interest, focusing on business-to-business interactions. We are currently exploring opportunities around delegations, information sharing, trade, commerce, and e-commerce. The main goal is to bring businesses together in a structured manner to share ideas and encourage positive outcomes.
This partnership aims to increase the understanding of each other’s economies, recognize opportunities in each other’s regions, and work together to create mutual benefits. By doing that, we hope to enhance the economic ties between Dubai and Australia, leveraging each other’s strengths to create a more dynamic and prosperous business environment.
How do you see this MoU impacting trade relations between Australia and Dubai in the short and long term?
In the short term, we are expecting to generate a significant increase in awareness. By sharing information, data, and demographic insights, we will gain a better understanding of each other’s economic environments. This will help us identify existing opportunities for collaboration and potential mutual investment. From a trade perspective, we anticipate increased exports from Australia to Dubai and vice versa. This could include areas such as disruptive technology, medical research, education, construction, and agriculture—sectors that are currently emerging and critical.
In the long term, this enhanced understanding and collaboration will allow us to identify and capitalize on more opportunities. It’s about recognizing what’s happening in each other’s regions, understanding potential opportunities, and working together to create economic value. By fostering a deeper economic connection, we aim to create sustainable growth and mutual benefits over time.
What sectors or industries do you see as the primary beneficiaries of this partnership?
There are several mutual opportunities we aim to explore. Dubai has evolved incredibly over the last 20 years, achieving remarkable growth. However, there are still areas where further cooperation can drive growth. Some of the key initiatives will focus on sectors such as AI, digital disruptive technologies, smart technologies, financial services, education, construction, and advanced technologies.
Australia is highly regarded for its building codes and manufacturing capacity, especially in the construction sector. Additionally, I believe food security presents an interesting opportunity. As a major exporter of meat and other food products, Australia can contribute significantly to food security discussions, which is particularly relevant for Dubai.
Education is another area with significant potential for collaboration. By exploring these sectors, we aim to implement projects that not only address current challenges but also pave the way for sustainable development and innovative solutions in both regions.
What challenges do you foresee in the implementation of this MoU, and how do you plan to address them?
The cultural differences can impact how business is conducted, and this requires careful navigation. To address this, we need open and transparent communication, fostering a spirit of collaboration and mutual respect. It’s essential to have a genuine desire to embrace each other’s cultural differences and find common ground.
Another potential challenge is ensuring that both sides fully understand and adapt to each other’s regulatory environments and market dynamics. Dubai has matured significantly into a global business and corporate hub, which helps, but there are still differences to consider.
By prioritizing understanding and respect, and committing to ongoing learning from each other, we can effectively manage these challenges. Working together in a considerate and respectful manner will be crucial in overcoming any hurdles that may arise during the implementation of this MoU.
How does this MoU align with ACCI’s broader strategic goals for international trade and collaboration?
This MoU aligns closely with ACCI’s broader strategic goals by emphasizing the importance of fostering and diversifying economic partnerships on a global basis. The current global geopolitical situation has underscored the need for diversifying our supply chains and business relationships.
From an Australian perspective, the lessons learned during the COVID-19 pandemic and the evolving geopolitical environment have further highlighted the necessity of expanding our economic partnerships.
The Middle East, including the GCC, are regions where Australia already has strong relationships that can be further strengthened. Therefore, by working together, collaborating, and sharing knowledge and forward-thinking ideas, this MoU will help us identify and shape initiatives that add value and align with our strategic goals for international trade and collaboration.
How do you envision the future of trade relations between Australia and the Middle
I believe it will become stronger, more robust, and more regular, all for mutual benefit. There is a genuine willingness between both regions to grow and expand this relationship through a partnership model rather than a transactional one. This approach involves setting short, medium, and long-term goals, fostering a thriving and enduring relationship.
We have already established a strong partnership with Dubai Chambers and maintain a good relationship with the Dubai International Chamber here in Australia, led by Sophia Demetriades Toftdahl. This aligns with our strategic goal of global diversification in business.
Additionally, we recently signed an MoU with the Qatar Chamber and are about to sign with the Abu Dhabi Chamber as well.
Engaging with Saudi Arabia also makes sense, as it is a significantly emerging country. The last few years under new leadership have brought clarity to its economic, political, and social future and a strong passion and drive to become a major player in the region and global stage
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
