China’s factory-gate deflation deepened in April as rising U.S. tariffs and a prolonged domestic slowdown intensified price pressures at the wholesale level. The Producer Price Index (PPI) fell 2.7% year-on-year, marking the steepest decline in six months, while consumer prices slipped for a third straight month, underscoring the growing challenge for policymakers striving to stabilize growth amid external and internal headwinds.
Data released by the National Bureau of Statistics showed that China’s PPI decline worsened from a 2.5% drop in March. The pace of deflation in factory-gate prices reflects both sliding global commodity costs and weakening overseas demand as U.S. import levies, now averaging 145% on a broad swath of Chinese-made goods, bite into export markets. Manufacturing firms—already grappling with excess capacity and tight financing—face shrinking margins and are under mounting pressure to pass on cost cuts to buyers, driving the PPI further into negative territory.
The deflationary trend at the factory gate has been accompanied by contracting manufacturing output. The official Purchasing Managers’ Index (PMI) dropped to 49.0 in April from 50.5 in March, its lowest reading in 16 months, indicating that factory activity contracted for a second consecutive month. A sub-index tracking new export orders plunged to levels not seen since early 2012, reflecting the sudden hit from the latest tranche of U.S. tariffs and growing difficulties in redirecting sales to alternative markets.
Meanwhile, consumer inflation remained subdued. April’s Consumer Price Index (CPI) recorded a 0.1% year-on-year decline, matching the drop in March, while the month-on-month CPI edged up 0.1%, compared with a 0.4% fall in the previous period. Core inflation—excluding food and energy—held steady at 0.5% year-on-year. Weak wage growth and high household leverage have dampened spending, even as staples such as pork and vegetables saw seasonal price upticks.
Retail sales growth slowed to an annual rate of just over 4% in April, down from 6% in the first quarter. Auto registrations, a barometer of big-ticket consumer confidence, rose only marginally, and home appliance sales posted single-digit gains. With the property sector mired in a multi-year downturn, many households are deferring purchases, keeping downward pressure on broader consumer prices.
Analysts warn that deflationary pressures may intensify as the U.S.-China trade war grinds on. U.S. tariffs imposed on nearly \$350 billion of Chinese goods in recent years have prompted Beijing to retaliate with levies on key American imports, further chilling bilateral trade. Export growth swung from a brisk 12.4% surge in March to anemic 1.9% year-on-year in April, weighed down by last-minute shipping ahead of tariff hikes, according to trade ministry estimates. Imports dropped 5.9%, widening the trade surplus but highlighting domestic demand weaknesses.
China’s reliance on exports to underpin growth has left it vulnerable to tariff shocks. In 2024, exports to the U.S. accounted for more than one-fifth of China’s total goods shipments. With U.S. consumer prices elevated and American firms seeking alternative suppliers, Chinese exporters face an uphill battle reclaiming market share. Private surveys indicate that many small and medium-sized exporters are postponing capacity upgrades or cutting output altogether.
In response, Beijing has rolled out a fresh package of stimulus measures aimed at shoring up demand. The State Council recently approved cuts in both the reserve requirement ratio for banks and benchmark loan rates, injecting liquidity estimated at over 1 trillion yuan (\$140 billion) into the financial system. New tax rebates for manufacturers and targeted subsidies for high-tech firms are intended to cushion export-oriented factories and spur investment in strategic sectors such as semiconductors and electric vehicles.
On the fiscal side, local governments have been allowed to accelerate the issuance of special bond quotas, with a focus on infrastructure projects that can deliver jobs and boost commodity demand. Spending on rail, water conservancy and renewable energy infrastructure is expected to rise sharply in the second half of the year. Meanwhile, Beijing has relaxed home-purchase restrictions in dozens of cities, hoping to revive the property market and support related industries from steel to home furnishings.
Major e-commerce and retail giants are also recalibrating strategies to capture more domestic sales. JD.com and Alibaba’s Freshippo have launched procurement platforms that help manufacturers sell directly to consumers and smaller wholesalers within China, aiming to offset lost overseas orders. These initiatives include digital marketing support, logistics subsidies and cooperative promotions with local governments to stimulate consumption in lower-tier cities.
Despite these efforts, consumer and business confidence indicators remain weak. A survey by a leading financial institution showed that only 35% of companies expect profitability to improve in the next quarter, while household sentiment around purchasing durable goods dipped to a six-month low. The uncertainties surrounding further tariff moves and geopolitical tensions continue to weigh on decision-making.
Global investment banks and multilateral organizations have trimmed their forecasts for China’s 2025 GDP growth to below the official target of around 5%. Goldman Sachs projects growth of roughly 4.8%, citing a two-percentage-point drag from higher trade barriers, while UBS and Citi predict even lower expansions, around 4.5%–4.7%. The International Monetary Fund has warned that without additional policy support, China risks a prolonged period of low growth and persistent deflationary pressures.
However, there is cautious optimism that upcoming trade negotiations in Switzerland, slated to begin later this month, could lead to a partial rollback of tariffs. Both sides have signaled a willingness to de-escalate, with U.S. trade representatives indicating flexibility on certain technology and agricultural products. Even so, most analysts believe that any tariff cuts will be gradual and unlikely to return levies to pre-trade war levels this year, meaning that exports may only receive modest relief amid broader challenges.
China’s leaders face a dual policy dilemma: providing enough stimulus to lift growth and inflation back to healthy levels without igniting financial risks through excessive credit expansion. The PBOC has repeatedly emphasized prudent monetary policy, suggesting that future interest rate cuts will be measured and tied to clear improvements in lending flows and inflation expectations. Fiscal authorities, meanwhile, must balance the push for local bond issuance against rising debt burdens in provincial governments.
As external demand remains uncertain and domestic consumption struggles to gain momentum, deflationary pressures at the factory gate are likely to persist through mid-year. Whether the latest round of fiscal and monetary easing can translate into stronger price growth and underpin a rebound in business activity will be closely watched by both domestic policymakers and international investors.
(Source:www.businesstimes.com.sg)
Data released by the National Bureau of Statistics showed that China’s PPI decline worsened from a 2.5% drop in March. The pace of deflation in factory-gate prices reflects both sliding global commodity costs and weakening overseas demand as U.S. import levies, now averaging 145% on a broad swath of Chinese-made goods, bite into export markets. Manufacturing firms—already grappling with excess capacity and tight financing—face shrinking margins and are under mounting pressure to pass on cost cuts to buyers, driving the PPI further into negative territory.
The deflationary trend at the factory gate has been accompanied by contracting manufacturing output. The official Purchasing Managers’ Index (PMI) dropped to 49.0 in April from 50.5 in March, its lowest reading in 16 months, indicating that factory activity contracted for a second consecutive month. A sub-index tracking new export orders plunged to levels not seen since early 2012, reflecting the sudden hit from the latest tranche of U.S. tariffs and growing difficulties in redirecting sales to alternative markets.
Meanwhile, consumer inflation remained subdued. April’s Consumer Price Index (CPI) recorded a 0.1% year-on-year decline, matching the drop in March, while the month-on-month CPI edged up 0.1%, compared with a 0.4% fall in the previous period. Core inflation—excluding food and energy—held steady at 0.5% year-on-year. Weak wage growth and high household leverage have dampened spending, even as staples such as pork and vegetables saw seasonal price upticks.
Retail sales growth slowed to an annual rate of just over 4% in April, down from 6% in the first quarter. Auto registrations, a barometer of big-ticket consumer confidence, rose only marginally, and home appliance sales posted single-digit gains. With the property sector mired in a multi-year downturn, many households are deferring purchases, keeping downward pressure on broader consumer prices.
Analysts warn that deflationary pressures may intensify as the U.S.-China trade war grinds on. U.S. tariffs imposed on nearly \$350 billion of Chinese goods in recent years have prompted Beijing to retaliate with levies on key American imports, further chilling bilateral trade. Export growth swung from a brisk 12.4% surge in March to anemic 1.9% year-on-year in April, weighed down by last-minute shipping ahead of tariff hikes, according to trade ministry estimates. Imports dropped 5.9%, widening the trade surplus but highlighting domestic demand weaknesses.
China’s reliance on exports to underpin growth has left it vulnerable to tariff shocks. In 2024, exports to the U.S. accounted for more than one-fifth of China’s total goods shipments. With U.S. consumer prices elevated and American firms seeking alternative suppliers, Chinese exporters face an uphill battle reclaiming market share. Private surveys indicate that many small and medium-sized exporters are postponing capacity upgrades or cutting output altogether.
In response, Beijing has rolled out a fresh package of stimulus measures aimed at shoring up demand. The State Council recently approved cuts in both the reserve requirement ratio for banks and benchmark loan rates, injecting liquidity estimated at over 1 trillion yuan (\$140 billion) into the financial system. New tax rebates for manufacturers and targeted subsidies for high-tech firms are intended to cushion export-oriented factories and spur investment in strategic sectors such as semiconductors and electric vehicles.
On the fiscal side, local governments have been allowed to accelerate the issuance of special bond quotas, with a focus on infrastructure projects that can deliver jobs and boost commodity demand. Spending on rail, water conservancy and renewable energy infrastructure is expected to rise sharply in the second half of the year. Meanwhile, Beijing has relaxed home-purchase restrictions in dozens of cities, hoping to revive the property market and support related industries from steel to home furnishings.
Major e-commerce and retail giants are also recalibrating strategies to capture more domestic sales. JD.com and Alibaba’s Freshippo have launched procurement platforms that help manufacturers sell directly to consumers and smaller wholesalers within China, aiming to offset lost overseas orders. These initiatives include digital marketing support, logistics subsidies and cooperative promotions with local governments to stimulate consumption in lower-tier cities.
Despite these efforts, consumer and business confidence indicators remain weak. A survey by a leading financial institution showed that only 35% of companies expect profitability to improve in the next quarter, while household sentiment around purchasing durable goods dipped to a six-month low. The uncertainties surrounding further tariff moves and geopolitical tensions continue to weigh on decision-making.
Global investment banks and multilateral organizations have trimmed their forecasts for China’s 2025 GDP growth to below the official target of around 5%. Goldman Sachs projects growth of roughly 4.8%, citing a two-percentage-point drag from higher trade barriers, while UBS and Citi predict even lower expansions, around 4.5%–4.7%. The International Monetary Fund has warned that without additional policy support, China risks a prolonged period of low growth and persistent deflationary pressures.
However, there is cautious optimism that upcoming trade negotiations in Switzerland, slated to begin later this month, could lead to a partial rollback of tariffs. Both sides have signaled a willingness to de-escalate, with U.S. trade representatives indicating flexibility on certain technology and agricultural products. Even so, most analysts believe that any tariff cuts will be gradual and unlikely to return levies to pre-trade war levels this year, meaning that exports may only receive modest relief amid broader challenges.
China’s leaders face a dual policy dilemma: providing enough stimulus to lift growth and inflation back to healthy levels without igniting financial risks through excessive credit expansion. The PBOC has repeatedly emphasized prudent monetary policy, suggesting that future interest rate cuts will be measured and tied to clear improvements in lending flows and inflation expectations. Fiscal authorities, meanwhile, must balance the push for local bond issuance against rising debt burdens in provincial governments.
As external demand remains uncertain and domestic consumption struggles to gain momentum, deflationary pressures at the factory gate are likely to persist through mid-year. Whether the latest round of fiscal and monetary easing can translate into stronger price growth and underpin a rebound in business activity will be closely watched by both domestic policymakers and international investors.
(Source:www.businesstimes.com.sg)