Stagnation risks on the rise: analysts

By Li Xuanmin Source:Global Times Published: 2020/3/5 21:43:40

Price hikes loom large due to production, logistics disruptions


Two customers walk out of a shopping mall in Nanjing, East China's Jiangsu Province on February 19. Photo: cnsphotos

Commodity price hikes as high as 20-30 percent are looming large in China - from electronics and home appliances to daily necessities and major industrial materials - a distressful trend that Chinese experts say could inhibit domestic consumption, even though the coronavirus epidemic is receding. 

Industry insiders expect the market to erase the price gain as early as April. But as confirmed infection cases rapidly grow overseas, they warn that the risk of economic stagflation could mount in China if the epidemic rocks the global economy and disrupts international supply chains. 

The prices of electronic components such as resistors and capacitors soared about 30 percent in recent days, a manager of a Shenzhen-based electronic parts original design manufacturer (ODM), who spoke on condition of anonymity, told the Global Times on Thursday. The price jumps were due to shrinking market supply following a prolonged factory production suspension at the height of the epidemic. 

The ODM supplies a number of Chinese smartphone makers including Xiaomi and Huawei.

"As we have just reopened, we have not begun purchasing raw materials from our suppliers. We're still using our inventories,  so we do not plan for a price increase at the current stage. But we will probably do so in mid-March after stocks run out," the manager said. 

Some industry insiders predicted that smartphones, which are end-user consumer devices, will likely to see production costs and maybe prices go up, as a result of the price rise in electronic parts. China ships 70 percent of global smartphones. 

"We all know that a flour price rise will lead to more expensive bread. It's just a matter of time and to what extent would the upstream price rise be translated into consumer products," the manager said. 

Meanwhile, prices of rare-earth magnets, an indispensable part of smartphones, also rose slightly in recent days, which will add to the cost of making a device.

"Prices of heavy rare-earth oxides gained about 10 percent because of logistics barriers, which make it difficult to deliver products across different provinces." a manager of a large-scale state-owned rare-earth enterprise in Ganzhou, East China's Jiangxi Province surnamed Yang, told the Global Times on Thursday. He predicted that the prices of rare earths will continue to rise in March.

On the other hand, it may take a while for China's logistics network to return to normalcy. 

A Beijing-based delivery man from a major logistics enterprise told the Global Times that the company is still short of staff, and the current capacity is only about half of that of previous times.

Smartphones are just one example of how Chinese consumers in the coming days could face potentially skyrocketing prices as various industries in China are still digesting the fallout of the coronavirus during their way to recover work.

Another example is the auto industry. As of Tuesday, about 84.1 percent of major automaker production bases in China had resumed operation. 

But the price of hydrofluoric acid, a raw material for making refrigerating fluid that is widely used in making air conditioners and vehicles, hit 11,340 yuan ($1,634) a ton as of Wednesday, up 11 percent compared with its price before the Spring Festival holidays, according to data from industry website. 

"As the coronavirus spread comes under control in China, Chinese people are expected to unleash their consumption power quickly. But their willingness to spend could be dampened to some extent by the expected price hikes," Tian Yun, vice director of the Beijing Economic Operation Association, told the Global Times on Thursday. 

He expected that the market will erase the price gain in April, but also warned of a prolonged supply chain disruption as the coronavirus onslaught is churning other economies. "Chinese manufacturers also source some key supplies outside. It is also likely that those prices will fluctuate drastically in the next few months due to the lack of such imports."

Industry observers stressed that Chinese policymakers need to be put on a higher alert for a possible stagflation.

"It's hard to measure how the fast-moving virus could hit the global economy and cut international supplies to China. We need to get prepared for more fiscal stimulus and measures to stabilize prices," Tian noted.  

In January, China's consumer price index, a main gauge of inflation, rose 5.4 percent year-on-year, according to the National Bureau of Statistics. The increase was up from 4.5 percent in December.



Posted in: ECONOMY

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