China’s Factory Deflation Deepens as Pandemic Hits Demand

May 12, 2020 Updated: May 12, 2020

BEIJING—China’s factory prices fell in April, highlighting weakening industrial demand in the world’s second-largest economy as the CCP (Chinese Communist Party) virus pandemic takes a global economic toll.

Data released last week showed a sharper-than-expected decline in imports and signals of weak domestic demand.

China is trying to recover from its first economic contraction on record during the January-March quarter when the economy was paralyzed by curbs to slow the spread of the virus.

“The pace at which producer prices are falling is faster than the market expected, which calls for more forceful measures to spur demand,” said Wen Bin, Senior Economist at Minsheng Bank in Beijing.

Capital Economics Senior China Economist Julian Evans-Pritchard said demand-side pressures are likely to persist for some time with tumbling energy and food prices bringing headline gauges lower.

“That should remove any concerns the People’s Bank of China has about the impact of monetary easing on inflation,” Evans-Pritchard said.

“If anything, lower inflation will increase real interest rates and strengthen the case for further rate cuts.”

The CCP virus pandemic, which has infected more than 4 million and killed about 280,000 globally, has paralyzed world demand and sent many economies into deflation as factories and retailers shut their doors.

China’s statistics bureau said producer price declines were driven by a slump in global crude oil and commodities prices. Nearly 60 percent of the deflation came from fuel extraction and processing and chemical manufacturing.

Among the 40 major industrial sectors surveyed, oil and gas extraction reported the largest year-on-year price fall of 51.4 percent, steepening from a 21.7 percent drop in the previous month.

Chinese manufacturers have been hit by a plunge in overseas orders and face rising inventories and falling profits, while many have let workers go to cut costs.

As China’s central bank ramped up economic support, banks extended 1.7 trillion yuan ($240.05 billion) in new yuan loans in April, significantly more than a year earlier, while growth of broad money supply also quickened.

Analysts expect further monetary easing soon, although Beijing is likely to rely on fiscal stimulus to cushion growth.

By Yawen Chen and Se Young Lee

Epoch Times staff contributed to this report.