China: Prices Falling Off a Cliff, Trade Balance Unexpectedly Positive

Econintersect: The words China and deflation were first used in a GEI News headline on 09 June 2012. Exactly one month later The New York Times breaking-news-130px has gotten on board. In an article yesterday (09 July 2012) by Keith Bradsher, The Times reported that prices of assets, including stocks and real estate, products and commodities are falling rapidly in China. The June CPI for China has come in 2.2% higher than a year ago, but this is down from 6.5% over the past eleven months and had its third consecutive negative reading month-over-month. The PPI for June declined 2.5% year-over-year.

Food, tobacco, liquor and clothing were the strongest categories in the CPI, all above 3% growth year-over-year. The complete official press releases are reproduced at the end of this article, including data tables and graphs.

In news just breaking on 10 July 2012, the June balance of trade for China widened to a surplus of $31.7 billion. This was 32% higher than the $24 billion expected and was the strongest month in three years. This put the surplus for the second quarter at $68.8 billion, higher than the amount expected by many for the entire year (around $50 billion, on average) and dwarfing the first quarter surplus that was less than $1 billion.

The cause of the surprise was an unexpectedly low amount of imports. From Reuters:

Annual import growth of 6.3 percent in June fell far short of the 12.7 percent forecast by economists and the 12.7 percent achieved in May, indicating both a drop-off in domestic demand and the running down of inventories by exporters worried about the weakness of new order growth.
“In today’s ‘accentuate the negative’ world, this is going to put the focus on the domestic demand angle and the hard landing story,” Tim Condon, chief economist and head of Asian economic research at ING in Singapore, told Reuters.

At 6.3%, the growth in imports fell far short of the 11.3% growth in exports.

And, as if to add an exclamation point, FDI (foreign direct investment in China has been weak for many months, with most of that lower amount going into the service sector after years of strong manufacturing sector investment.

Michael Pettis has been saying for months in articles posted at GEI Analysis that major economic adjustments are necessary for China. He was quoted in today’s New York Times:

Michael Pettis, a finance professor at the Guanghua School of Management at Peking University, said that falling prices could even be good for China.

While all of this has been happening China’s outward investment has been continuing the accelerated pace of last year.

Click on graphic for larger image.

Following are the press releases from National Bureau of Statistics of China:

Consumer Prices for June 2012

National Bureau of Statistics of China 2012-07-09 14:26:36

In June, the consumer price index (CPI) went up by 2.2 percent year-on-year. The prices grew by 2.2 percent in cities areas and 2.0 percent in rural areas. The food prices went up by 3.8 percent, while the non-food prices increased by 1.4 percent. The prices of consumer goods went up by 2.3 percent and the prices of services grew by 1.9 percent. In the first half of this year, the overall consumer prices were up by 3.3 percent over the same period of previous year.

In June, the month-on-month change of consumer prices was down by 0.6 percent, prices in cities and rural went down by 0.6 and 0.5 percent respectively. The food prices dropped by 1.6 percent, the non-food prices kept at the same level (the amount of change was 0). The prices of consumer goods decreased by 0.9 percent, and the prices of services increased by 0.3 percent.

china-cpi-2012-June

I. Year-on-Year Changes of Prices of Different Categories

In June, food prices went up by 3.8 percent year-on-year, affecting nearly 1.20 percentage points increase in the overall price level. Of which, the prices of fresh vegetables rose by 12.1 percent, affecting nearly 0.30 percentage points increase in the overall price level; prices for aquatic products increased 8.6 percent, affecting nearly 0.21 percentage points increase in the overall price level; the prices of grain rose by 3.2 percent, meaning 0.09 percentage points growth in the overall price level; grease, increased 6.0 percent, affecting nearly 0.07 percentage points increase in the overall price level; fresh fruits, up by 0.6 percent, affecting nearly 0.01 percentage points increase in the overall price level; meat, poultry and related products dropped by 1.7 percent, affecting nearly 0.13 percentage points decrease in the overall price level (price of pork was down by 12.2 percent, affecting nearly 0.43 percentage points decrease in the overall price level); eggs, down by 3.6 percent, affecting nearly 0.03 percentage points decrease in the overall price level.

Prices for tobacco and liquor went up by 3.2 percent year-on-year, of which, that of liquor was up by 7.1 percent and tobacco was up by 0.6 percent.

Prices for clothing rose by 3.3 percent year-on-year. The prices for clothes went up by 3.5 percent while the prices for shoes increased 2.4 percent.

Prices for household facilities, articles and maintenance services went up by 1.9 percent year-on-year, of which, prices for household services and processing, maintenance services, up by 9.2 percent, and durable consumer goods was up by 0.4 percent.

Prices for health care and personal articles grew by 1.9 percent year-on-year. Of which, prices for traditional Chinese herbal medicines and proprietary Chinese medicines, up by 4.9 percent, medical apparatus and supplies increased 2.8 percent, health care services, up by 0.6 percent, and western medicine went up by 0.5 percent.

Prices for transportation and communication dropped by 0.4 percent year-on-year. Of which, prices for fuels and parts for vehicles, down by 0.7 percent, vehicles use and maintenance, up by 4.6 percent, intercity traffic fares, up by 1.7 percent, incity traffic fares, up by 1.5 percent, communication facilities, down by 12.1 percent, and transportation facilities dropped by 0.8 percent.

Prices for recreation, education, culture articles and services grew by 0.3 percent year-on-year. Of which, touring and outing, up 2.0 percent, recreation and culture, up 1.5 percent, education service, up 1.3 percent, durable consumer goods for recreational and cultural use and services, down by 5.7 percent.

Prices for residence went up by 1.6 percent year-on-year. Of which, prices for house renting, up 2.9 percent, water, electricity and fuel, up 1.0 percent, and building and building decoration materials rose by 0.7 percent.

According to estimation, in the 2.2 percent growth in June, the carryover effect of last year’s prices rising accounted for 1.4 percentage points, while new prices rising factors in this year accounted for 0.8 percentage points.

china-cpi-components-2012-June

II. Month-on-Month Changes of Prices of Different Categories

In June, food prices dropped by 1.6 percent month-on-month, contributing 0.53 percentage points to the month-on-month decrease of consumer prices. In June, prices for fresh vegetables decreased 15.2 percent, contributing 0.48 percentage points decrease in the overall price level; prices for meat, poultry and related products decreased 0.6 percent, narrowing 0.04 percentage points (the prices of pork down by 1.6 percent, affecting 0.05 percentage points decrease in the overall price level); prices for aquatic products decreased 0.5 percent, contributing 0.01 percentage points to the decrease of consumer prices; price for eggs, went up 11.4 percent, contributing 0.08 percentage points increase in the overall price level; price for grain increased 0.1 percent.

Non-food prices kept at the same level (the amount of change was 0) in June. Of which, the month-on-month prices for tobacco and liquor, household facilities, articles and maintenance services, health care and personal articles all increased 0.1 percent. The prices for transportation and communication decreased 0.5 percent. The month-on-month prices for clothing, recreation, education, culture articles and services, and residence kept at the same level (the amount of change was 0). In view of residence, the prices of water, electricity and fuel dropped by 0.9 percent, of which, the price for liquefied petroleum gas went down by 6.1 percent.

china-cpi-components-mom-2012-june

Consumer Prices in June
Items	June
Items	M/M (%)	Y/Y (%)	Jan-Jun

Consumer Prices	-0.6	2.2	3.3
Of which: Urban	-0.6	2.2	3.3
Rural	-0.5	2.0	3.3
Of which: Food	-1.6	3.8	6.9
Non food	0.0	1.4	1.6
Of which: Consumer Goods	-0.9	2.3	3.9
Services	0.3	1.9	1.7
By Commodity Categories
I. Food	-1.6	3.8	6.9
Grain	0.1	3.2	4.3
Grease	0.3	6.0	5.7
Meat, Poultry and Related Products	-0.6	-1.7	8.9
Of which: Pork	-1.6	-12.2	6.8
Eggs	11.4	-3.6	-6.3
Aquatic Products	-0.5	8.6	10.6
Fresh Vegetables	-15.2	12.1	19.7
Fresh Fruits	-6.3	0.6	-4.6
Milk and dairy Products	0.1	3.1	3.2
II. Tobacco, Liquor and Articles	0.1	3.2	3.5
Tobacco	0.1	0.6	0.5
Liquor	0.2	7.1	8.0
III. Clothing	0.0	3.3	3.5
Clothing	0.0	3.5	3.7
Shoes	-0.3	2.4	2.7
IV. Household Facilities, Articles and Maintenance Services	0.1	1.9	2.2
Durable Consumers	0.1	0.4	0.6
Household Services and Processing, Maintenance Service	0.5	9.2	9.7
V. Health Care and Personal Articles	0.1	1.9	2.4
Chinese Herbal Medicines and Proprietary Chinese Medicines	0.2	4.9	7.5
Western Medicines	0.0	0.5	0.1
Health Care Services	0.1	0.6	0.5
VI. Transportation and Communication	-0.5	-0.4	0.0
Transportation Facilities	-0.1	-0.8	-0.6
Fuels and Parts for Vehicles	-4.2	-0.7	5.0
Communication Facilities	-0.9	-12.1	-13.1
Communication Services	0.0	0.1	-0.2
VII. Recreation, Education, Culture Articles and Services	0.0	0.3	0.2
Education Services	0.1	1.3	1.2
Tourism	-0.2	2.0	1.9
VIII. Residence	0.0	1.6	1.8
Building and its Decoration Materials	0.0	0.7	1.7
House Renting	0.5	2.9	2.4
Water, Electricity, and Fuel	-0.9	1.0	1.6

Annotations:

1. Explanatory Notes

Consumer Price Index (CPI) is an index measuring changes over time in the price level of consumer goods and services purchased by residents, which comprehensively reflects the changes of price level.

2. Statistical Coverage

Consumer Price Index (CPI) covers the prices of goods and services of eight categories and 262 basic divisions which cover the living consumption of urban and rural residents, including food; tobacco, liquor and articles; clothing; household facilities, articles and maintenance services; health care and personal articles; transportation and communication; recreation, education, culture articles and services and residence. Data are collected from 63,000 prices collection units in 500 cities and counties of the 31 provinces (autonomous regions and municipalities), which cover grocery stores, department stores, supermarkets, convenience stores, professional markets, franchise houses, shopping centers, open fairs and service consuming units etc.

3. Survey Methods

The prices collection units are selected and determined by sample survey methods, and the original data of consumer prices are collected by specific person in fixed place at fixed time.

Producer Prices for the Industrial Sector for June

National Bureau of Statistics of China 2012-07-09 16:31:57

In June 2012, Producer Price Index (PPI) for manufactured goods decreased 2.1 percent, year-on-year, and 0.7 percent decrease month-on-month. The purchasing price index for manufactured goods went down by 2.5 percent year-on-year, and 0.8 percent decrease month-on-month. In the first half of this year, the PPI decreased 0.6 percent, year-on-year, the purchasing price index for manufactured goods went down by 0.3 percent year-on-year.

china-ppi-2012-June

1. Year-on-Year Changes of Prices of Different Categories

The year-on-year change of producer prices for means of production decreased 2.9 percent. In which, producer prices for mining and quarrying industry decreased 2.9 percent; that of raw materials industry decreased 3.0 percent, while that of manufacturing and processing industry decreased 2.9 percent. Producer prices for consumer goods went up by 0.7 percent. Of which, producer prices for foodstuff increased 1.3 percent, that of clothing increased 2.1 percent, that of commodities up by 0.9 percent, while that of durable consumer goods dropped 1.2 percent.

The year-on-year purchaser price indexes for non-ferrous metal materials and wires decreased 7.6 percent, ferrous metals materials declined 6.7 percent, chemical raw materials decreased 5.0 percent, fuel and power kept at the same level (the amount of change was 0), wood and pulp climbed 0.4 percent.

2. Month-on-Month Changes of Prices of Different Categories

The month-on-month change of producer prices for means of production decreased 0.9 percent. Of the total, producer prices for mining and quarrying industry decreased 2.3 percent, that of raw materials industry decreased 1.8 percent, that of manufacturing and processing industry dropped 0.4 percent. Producer prices for consumer goods remained at the same level month-on-month (the amount of change was 0). Of which, producer prices for foodstuff decreased 0.2 percent; that of clothing increased 0.2 percent, that of commodities increased 0.1 percent, and that of durable consumer goods dropped 0.1 percent.

The month-on-month purchaser price indexes for non-ferrous metal materials and wires decreased 1.1 percent, ferrous metal materials went down by 1.2 percent, chemical raw materials declined 1.3 percent, fuel and power decreased 1.6 percent.

Price Indexes for the Industrial Sector in June
	June		Jan-Jun
	M/M(%)	Y/Y(%)	Y/Y(%)

I. Producer Price Indexes	-0.7	-2.1	-0.6
Means of production	-0.9	-2.9	-1.2
Mining and quarrying	-2.3	-2.9	2.0
Raw materials	-1.8	-3.0	-0.1
Processing	-0.4	-2.9	-2.1
Means of subsistence	0.0	0.7	1.3
Food	-0.2	1.3	2.3
Clothing	0.2	2.1	2.5
Articles for daily use	0.1	0.9	1.2
Durable consumer goods	-0.1	-1.2	-0.8

II. Purchaser Price Indexes	-0.8	-2.5	-0.3
Fuel and Power	-1.6	0.0	3.7
Ferrous Metals	-1.2	-6.7	-4.3
Non-ferrous Metal Materials and Wires	-1.1	-7.6	-4.9
Chemical Raw Materials	-1.3	-5.0	-2.4
Wood and Pulp	-0.2	0.4	1.0
Building Materials and Non-metallic	-0.3	-1.0	1.2
Other Industrial Raw Materials and Semi-products	-0.2	-1.3	-0.4
Agricultural and Sideline Products	-0.2	-1.3	1.0
Textile Raw Materials	-0.5	-1.9	0.0

Annotations:

1. Explanatory Notes

Producer Price Index for manufactured goods consists of producer price index and purchaser price index.

The industrial producer price index reflects the trend and level of prices change when the products are sold for the first time.

The industrial purchaser price index reflects the trend and level of prices change for the products purchased by the industrial enterprises as intermediate inputs.

2. Statistical Coverage

The statistical survey of industrial producer prices covers prices for over 11,000 products from 1702 subclasses, 191 groups; and the statistical surveys of industrial purchaser prices cover prices for over 6,000 industrial products from over 900 subclasses.

3. Survey Methods

Industrial producer prices are collected from combined surveys of key businesses and typical businesses. Starting from 2011, the key businesses are those with their turnover from primary activities over 20 million yuan, and the typical businesses are those with less than 20 million yuan. The surveys cover about 60,000 industrial enterprises in over 400 cities across the country.

John Lounsbury

Sources: