China is growing more worried about how
surging commodity prices will affect business profits
BEIJING — The global surge in commodity
prices is adding another burden to China’s small businesses, many of which have
barely put the coronavirus pandemic behind them.
In a sign of how severe the problem is,
Chinese Premier Li Keqiang and other leaders emphasized at a meeting Wednesday
they would increase support for privately run businesses — first, in the
persistent issue of getting financing, and second, for coping with rising
prices of raw materials.
The statement marked the latest central
government announcement in the last few weeks on record high commodity prices,
as authorities rush to limit the negative impact on the economy.
If businesses selling to consumers keep
prices steady in order to remain competitive, the rise in commodity prices will
cut into profit margins.
Already, on Thursday, China’s statistics
bureau said industrial profit growth slowed to a 57% year-on-year increase in
April, down from 92.3% in March. Although these figures are distorted by the
contraction of the economy in the first quarter last year, the bureau noted the
negative impact of rising commodity prices, among other factors.
The cost of raw materials as measured by
the producer price index rose 6.8% from a year ago in April, the fastest pace
in over three years. But consumer prices edged up just 0.9% as pork prices
fell.
The persistently large gap between
producer prices and consumer prices has greatly reduced profitability for
manufacturers, and they can only maintain normal operations by reducing other
costs, Gu Shuangfei, commodities analyst at Hangzhou-based brokerage Nanhua
Futures, said Wednesday.
CPI will likely remain steady in the
future, given macroeconomic policies and household income levels, Gu said,
noting that as a result, government policy will focus on controlling raw
material prices and ensuring stable business operations.
Even in China’s state-dominated economy,
small, privately run businesses contribute to the majority of GDP growth, tax
revenue and jobs. The meeting Wednesday of the top executive body, the State
Council, noted there were a total of about 139 million small, micro-sized and
individually run businesses as of the end of April.
Authorities have repeatedly stated in the
last several months that pressure on employment remains high, despite the
overall economy’s recovery from the pandemic. This week’s State Council meeting
said measures to help small businesses cope with rising commodity prices
include local subsidies for employment.
CNBC