Chinese Firms Offset Inflation With Efficiency
China's key inflation indicator returned to decade-high levels last month. But the country's manufacturers appear to be weathering the situation surprisingly well, helping keep broader price gains contained even as surging food prices are pressuring consumers.
Jumps in the prices of meat, vegetables and cooking oil helped push the consumer-price index for October up 6.5% from a year earlier, the National Bureau of Statistics said yesterday. That figure was up from a 6.2% rise in September and matched August's increase, which was the highest rate since 1996. Though price rises in other goods have been modest, the government now admits that inflation will far exceed its original target of 3% this year, and recent increases in state-set fuel prices could contribute to more price gains.
China's high inflation rate is in part a symptom of the global rise in commodity prices, as farm products like corn and soybeans are climbing sharply alongside the increase in crude oil and metals. That broad upward pressure on costs has been exacerbated in China by domestic supply problems in key products -- notably pork, the nation's staple meat. Low pork prices last year discouraged farmers from raising pigs this year, which has led to a shortage that has been worsened by an outbreak of pig disease.
The surging food prices have been painful for average Chinese, and have raised questions about how China is affecting global price trends. So far, China's influence has come mainly two ways: through its strong demand for raw materials, which has helped push those prices up globally, and its manufacturing of low-cost goods for export to other countries. Inexpensive products from China are widely credited with holding down inflation in developed nations in recent years, and China's official data suggest that prices of manufactured goods are still rising only modestly. Nonfood inflation remained steady at 1.1% in October, even as a separate Chinese index of raw-material prices -- items like steel, cement and fuels -- is up 3.6% this year through the end of September.
That mismatch might suggest that Chinese companies aren't passing on all their cost increases to consumers, and they are accepting lower profits in order to protect their market share. Yet other official figures show that profit margins overall in China have been stable this year. According to a government survey of industrial companies, their overall profits are equivalent to 6.4% of sales so far this year, higher than the 6.1% margin in 2006.
Instead, improvements in efficiency appear to be helping Chinese companies contain costs -- and thereby mitigate the upward pressure on global consumer prices from rising commodities prices.
'The ability of China's industry to offset rising raw-material prices by increasing efficiency has so far remained undiminished,' Song-Yi Kim and Louis Kuijs wrote in a recent World Bank research paper. Wages and commodity prices in China have been steadily rising for the past few years, yet profit margins of Chinese manufacturing companies have actually been widening, they say. Labor productivity in manufacturing improved by 23% a year from 2002 to 2006, the researchers estimate, while efficiency in use of raw materials has been rising at 1.5% a year.
Those trends might not last forever: A central-bank survey of companies in September found more of them were passing on higher costs to consumers. But Chinese companies still have room to improve efficiency, because their technical level is relatively low by international standards. Continued strength in productivity 'would be expected from technology and skill transfer as multinationals shift production platforms to China,' said Glenn Maguire, an economist for Societe Generale in Hong Kong.
Productivity matters for China's major customers, the U.S. and Europe. Until recently, U.S. measures of prices of its imports from China showed falling prices. But last week, the latest figures show prices of imports from China up 2.2% from a year earlier, the sixth straight month of increases. Yet the rise is still slower than that of U.S. imports overall. That suggests China is, at least, not leading the inflationary pressures. And some observers believe China's downward pressure on prices in developed countries still has some way to go.
Jean-Claude Trichet, president of the European Central Bank, said last week that domestic inflation in China is unlikely to push up prices in Europe. The reason: Chinese-made products are still much cheaper than European ones, and their share of the European market is growing, not shrinking. 'The ongoing rise in import shares from China combined with its continuing lower price levels should on the whole continue to put downward pressure on euro-area import prices,' Mr. Trichet said in a speech in Frankfurt.
Nevertheless, the rise in food prices cuts directly into the spending power of average Chinese and therefore has drawn increasing concern in Beijing. Chinese Premier Wen Jiabao met with residents in a Beijing neighborhood Monday, before the latest figures were released, to reassure them that the government is looking after their interests. 'We have ways to ensure supply, and are taking many measures to stabilize prices,' Mr. Wen said. Among other things, the government is offering subsidies to boost pork production.
Andrew Batson
发帖
雷达卡
京公网安备 11010802022788号
