China factory deflation seen turning on commodities, stimulus

(From Bloomberg)

  • Recovering prices boost revenue, ease corporate debt burden
  • Risk is China exports excess capacity to overseas markets
Chinese factory scene

Chinese factory scene

China’s producer-price deflation, now in its fifth year, looks like it has turned a corner.

Prices for products leaving the factory will improve in each of the next four quarters and turn positive in 2018, according to economists surveyed by Bloomberg. Producer prices rose in March on a month-on-month basis for the first time since September 2013.

The comeback is being driven by rising home and commodity prices, an avalanche of credit and a steep slowdown in manufacturing investment. That’s good news for companies because recovering factory prices boost revenues and help reduce real interest rates, easing the burden of repayment on corporate debt that’s equivalent to about 165 percent of gross domestic product.

“The worst time is over,” said Harrison Hu, chief Greater China economist at Royal Bank of Scotland Plc in Singapore. “If the government can keep domestic demand relatively stable, then excess capacity is already at a turning point. The producer-price index should gradually come out of the woods.” Read more

Categories: Asia Unhedged, China

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