China's Persistent Economic Recession Signals... PPI Negative for 21 Consecutive Months

The Producer Price Index (PPI), a barometer of Chinese corporate performance, has recorded negative growth for 21 consecutive months, signaling an economic downturn. The Consumer Price Index (CPI), which reflects domestic demand trends, also remained in the 0% range, heightening concerns about deflation (a decline in prices amid economic recession).

On the 10th, the National Bureau of Statistics of China announced that the PPI for June fell by 0.8% year-on-year. This figure aligns with the forecast (-0.8%) and surpasses the previous month's figure (-1.4%).

[Image source= Xinhua News Agency]

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The PPI, a leading indicator that can gauge future corporate economic trends, has shown negative growth for 21 consecutive months since recording -1.3% in October 2022. This is the longest streak since the 54 consecutive months of year-on-year contraction from March 2012 (-0.3%) to August 2016 (-0.8%). The continued weakness in the PPI is interpreted as a result of China's overproduction and weak demand.

Among these, prices in the mining industry rose by 2.7%, and prices in the raw materials industry increased by 1.6%. The manufacturing and daily necessities sectors fell by 2.0% and 0.8%, respectively. Food prices declined by 0.2%, and durable consumer goods prices dropped by 2.1%.

The CPI, which reflects the demand trends of Chinese consumers, rose by only 0.2% year-on-year last month. This result is below both the previous month's figure (0.3%) and the forecast (0.4%). Since March last year (0.7%), China's CPI has remained in the 0% range for 16 consecutive months, increasing concerns about deflation.

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This is significantly below the annual CPI increase target (around 3%) set by the government at the National People's Congress and the Chinese People's Political Consultative Conference (the "Two Sessions") held in March. Unless prices rise sharply in the second half of the year, achieving the target has become virtually impossible.

The market is focusing on the 20th Central Committee of the Chinese Communist Party's 3rd Plenary Session (the 3rd Plenum), scheduled for June 15-18. Within China, there is an expectation that various policies presented at the 3rd Plenum will confirm the government's determination to stimulate the economy, thereby boosting consumer confidence and promoting demand.

On the other hand, external experts predominantly hold a skeptical view that it will be difficult for the 3rd Plenum to produce substantial large-scale economic stimulus measures beyond the comprehensive and political slogans issued so far. As a result, the Hong Kong H-Share Index, composed of mainland companies listed on the Hong Kong Stock Exchange, closed lower for three consecutive trading days starting from the 5th.

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