Monday, April 22, 2024
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CHINA EXPORTS INFLATION

The Economist magazine has just flagged up serious concerns about inflationary pressures now being exerted by Chinese export goods on Western markets. BDN financial editor Roger Willis reports.

Business surveys carried out in China have revealed that domestic factory-gate prices climbed at an average annualised rate of 9% during May, the biggest increase in more than a decade. A principal driver was the soaring cost of raw materials, led by steel and copper.

Post-pandemic Chinese economic recovery has centred on an investment surge for large-scale residential and infrastructure construction projects, requiring vast amounts of steel. But this hike in demand coincided with China’s government cutting steel production to meet climate-change targets. At the same time, Covid lockdowns have disrupted supplies of copper to China from dominant global mining sources in Chile and Peru.

The consequence has been a significant rise for the input price of both metals to Chinese industrial users. Obviously, indigenous automotive and motorcycle manufacturers are heavily dependent on them and in no position to absorb these increases. So they are being passed on to overseas customers.

This inflationary effect is also compounded by an exponentially mounting cost of shipping goods in the currently chaotic worldwide maritime logistics situation. And to make matters worse, the Chinese yuan has grown in value by nearly 10% against the US dollar over the past year, reaching a three-year high in May. It has also strengthened considerably versus the euro and sterling. 

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