China’s Factory-Gate Deflation Deepens

The factory-gate price is the price at which factories sell to wholesalers.

Back in October, factory-gate prices in China dropped for the first time since December 2020.

Since then, prices have trended even lower.

Here’s a May 11 news item from Reuters:

China’s slow consumer inflation, deepening factory gate deflation to test policy

The weak consumer price rise reinforces the signals from this week’s trade data suggesting domestic demand remains lacklustre, while the deflationary impulse in producer prices underlines the strains on factories – a double-whammy for the world’s second-biggest economy … .

Our Global Market Perspective has been discussing China’s deflationary impulses for a good while.

Here are brief quotes from three separate issues of the Global Market Perspective during the past several months:

November 2022 GMP: China is out in front of the world-wide economic turmoil, and steel prices are another reflection of its quickening descent. According to Bloomberg, steel rebar is down 33% from its May high. “China’s diminishing steel demand” is cited as the reason for the collapse. Iron ore, the primary raw material in steel, is down an even greater 52% since March.

October 2022 GMP: China’s real estate problem is morphing into a larger economic meltdown. At a time of the year when exports usually surge, China’s export growth slipped from a monthly gain of 18% in July to just 7% in August. On September 9, a Jiangsu-based shipping agent revealed “on condition of anonymity” that “overall shipping demand from customers is plummeting.” Reuters reports, “Alarms are echoing in workshops across eastern and southern China’s manufacturing hubs, in industries from machinery parts and textiles to high-tech home appliances, where businesses are scaling back while export orders dry up.” Shipping costs from China, which we showed last month via the World Container Index, continue to crash, falling another 25% from August to September.

September 2022 GMP: “Chinese economic activity slowed across the board in July,” stated The Wall Street Journal on August 15. “A decline in demand has happened suddenly,” said a Bloomberg article the same day. It quotes a marketing manager of a Chinese textile firm saying orders for buttons, zippers and sewing thread dropped 30% in July and August from a year ago.