A lady walks past the headquarters of the People’s Bank of China in Beijing.
Jason Lee | Reuters
BEIJING – Consumer prices in China are likely to fall in July before rebounding, Liu Guoqiang, vp of the People’s Bank of China, told reporters on Friday.
Official measures of consumer prices have hardly modified over the previous few months in the face of low demand, in contrast to high inflation in the US and Europe.
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“YoY CPI growth has weakened this 12 months, and there could also be a decline in July,” Liu said. He argued that the decline was only a “phase” due to a recovery in demand and base effects.
“There isn’t a deflation for the time being and there will probably be no risk of deflation in the second half of the 12 months,” he said, pointing to aspects corresponding to China’s economic recovery and money supply growth.
Latest bank loans for June increased by greater than analysts Reuters poll expected.
The central bank said in April that consumer prices are likely to see a U-shaped recovery this 12 months.
Liu repeated that forecast on Friday and said he expects consumer price growth to approach 1% by the tip of the 12 months.
China on Monday reported no change in consumer prices in June compared to last 12 months. Excluding food and energy, consumer prices increased by 0.4% compared to the previous 12 months.
Bruce Pang, chief economist and head of research for Greater China at JLL, assuming 0% CPI with a market reference credit rate of three.55%, the true rate of interest in China exceeds 3%.
Against this, the true rate of interest in the US is around 0.5%, considering core inflation around 4.5% and a credit rate above 5%, he said.
“So China should actually cut rates of interest,” he said, noting that if prices became deflationary, the online effect can be to raise rates of interest.
Growth slowdown
China’s post-pandemic economic recovery has stalled in recent months due to weak retail sales, the continuing overhang of the true estate slump and declining exports. The country is due to report second-quarter GDP on Monday.
“The foundations we announced are now coming into effect,” Liu of the PBOC said on Friday. “We should have patience and trust in the stable growth of the economy.”
He noted expectations that it might take a 12 months for the Chinese economy to get better.
China has set a GDP goal of around 5% for the 12 months, lower than most institutions’ current projections.
Beijing is reluctant to launch one other round of large-scale stimulus. Debt levels have skyrocketed, especially for local governments, whose ability to repay their debts has decreased.
On Monday, China said measures it announced in November to support the true estate sector will probably be prolonged until the tip of 2024. Beijing has focused on ensuring that the development of apartments – which in China are typically sold before completion – will probably be delivered to homebuyers.
Developers are turning to business bank lending, Zou Lan, director of the PBOC’s monetary policy department, told reporters at the identical briefing on Friday. He noted that latest loans to developers in the primary half of this 12 months amounted to 420 billion yuan ($58.9 billion), about 200 billion yuan greater than a 12 months ago.
He described the true estate market as generally “stable”, but said that “the long-accumulated risk of some real estate corporations takes time to step by step absorb.”
Zou said finance ministries will actively work with other ministries to examine policies to make them more targeted. He said this was “due to profound shifts in the connection between supply and demand in the [China’s] real estate market.”
Support for tech corporations
Meanwhile, China is looking for to bolster the country’s tech industry as a way to support growth and ensure self-sufficiency against US sanctions.
China announced in late June that its highest authority, the State Council, had adopted a plan to strengthen support for financing tech corporations.
Asked in regards to the plan on Friday, Liu of the PBOC said the measures include strengthening external support, including the usage of international capital markets.