Message or massage? What’s the value of a price signal before China’s Communist Party congress?
The heavy hand of the state has given some industries a leg up, putting a rosier glow on the economy as party delegates get ready to gather in Beijing
At face value, the 6.9 per cent rise in China’s producer price index (PPI) for September, the last economic signal before the Communist Party’s twice-a-decade national congress, was a sign of the country’s robust economic health, analysts said.
But the monthly indicator also papered over an issue critical to the economy’s future: state intervention in the market, they said.
Amid such intervention, Chinese economists are divided over the value of the PPI data and other figures. While some argue that China is entering a new boom cycle, others say price rallies are unsustainable if they are engineered by supply cuts without a rise in real demand.
The PPI, a measure of factory-gate prices, has come back to life since September last year after registering no growth for the previous 54 months.
The revival has buoyed many struggling coal mines and steelmakers and put a rosier glow on the world’s second-biggest economy.
Prices in the iron and steel industry surged 31.5 per cent last month from a year earlier, and prices in the coal mining industry jumped 28.6 per cent, contributing to an overall rise in the PPI, the National Bureau of Statistics (NBS) said on Monday.
But there is debate over just how much this growth is the result of greater market demand or Beijing’s iron-fisted squeeze on supply.
Iris Pang, chief greater China economist at ING in Hong Kong, said cuts in capacity – and subsequent rises in factory-gate prices – appeared to be the result of discussions between central and local governments rather than down to the market.
“China has long taken administrative tools during its drive for supply-side reform,” Pang said.
“The Chinese leadership … is afraid of the chaos caused by the market-based restructuring [that could involve social unrest].”
Raymond Yeung, chief Greater China economist at ANZ Bank in Hong Kong, said Beijing’s visible hand in ferrous metals and coal, from capacity control to environmental checks, was particularly heavy.
In the coal industry, it is a standard practice for the National Development and Reform Commission (NDRC), the top planning agency, to summon state coal mine bosses and officials for meetings, telling them how much to dig up and what prices to charge.
The NDRC said on the weekend that it had held a meeting with the country’s major coal mines and power plants, the big buyers of the fuel, to try to sort out prices for next year.
In the steel industry, the government can decide which plants can operate and which must close. It has also created the world’s second-biggest steelmaker by merging a troubled state firm with a profitable one.
The NBS will release China’s gross domestic product for the third quarter on Thursday, the second day of the party congress. But China’s central bank governor has already said the figure for the second half will be about 7 per cent, after a 6.9 per cent in the first half and an earlier target of 6.5 per cent.
Yeung said the Chinese government’s greater role in the economy reflected President Xi Jinping’s efforts to solve China’s economic woes and avoid “Western-style market failures”.
Louis Kuijs, chief Asia economist of Oxford Economics, said state intervention was “something people have to live with” and Chinese policymakers were emboldened to take this type of approach because it had yielded “pretty good results”.
“People that are looking for the market … may have to wait for a long time,” Kuijs said.