China, central bank alarm: risk of a “near stagflation”

China is entering a new economic phase, with connotations that could be worrying. Growth has slowed and a series of structural weaknesses are manifesting, while inflation is on the rise fueled by rising commodity and energy prices. According to Liu Shijin, a member of the monetary policy committee of the People’s Bank of China (PBOC), the central institution in Beijing, the risk is that the world’s second largest economy will enter a period of “near stagflation”.

According to what the South China Morning Post, Liu explained that the risks of inflation are under control, but persistent growth in the producer price index “which reflects the prices that factories impose on wholesalers for their products” could increase the pressure. inflationary and related risks.

Ultimately, in October, the consumer price index was 1.5 percent year-on-year, up 0.7 percent compared to September. However, factory prices rose 13.5 percent year-on-year last month, while in September they rose 10.7 percent. It is a blaze like never seen since 1995, practically another era.

“It is possible that the speed of economic growth is too slow while high prices are being produced; I refer mainly to producer prices, but we must check that the increase does not overflow in consumer prices, ”Liu said in an online event organized by the People’s University of China. And he added that China must be careful not to enter a period of “quasi-stagflation”.

Staging is a condition in which persistent low economic growth occurs in conjunction with a period of high inflation. This is a situation that can lead to an erosion of employment.

China in the third quarter of 2021 grew by 4.9 percent compared to the same period last year, with a decrease of 7.9 percent compared to the second quarter.

The Chinese central bank has already highlighted how, while it is true that the situation at the moment seems under control, it is also true that it is becoming increasingly difficult to keep up the pace of the economy due to a series of “structural and cyclical hiccups” .

There is in particular some concern with respect to the growth prospects also due to the liquidity and debt situation of some important sectors, such as the real estate sector, which is experiencing a profound crisis with the risk of bankruptcy for some large operators in the sector, starting from by Evergrande.

The Chinese authorities have set rules and constraints on operators in this sector to bring their debt situation back into a sustainable framework and this has brought out their fragility and also the risk that a domino effect may occur in the financial sector.

Another area in which the Chinese authorities have exerted significant regulatory pressure since the end of 2020 is that of Big Tech.

Last week, Chinese Prime Minister Li Keqiang warned that the Chinese economy is experiencing new negative pressures and stressed that the government intends to focus on keeping employment at a good level and on supporting small producers, who are struggling. the rise in commodity prices.

The central bank also fears the risks associated with the persistence of the pandemic situation, with the risk of new waves and new restrictions that have a heavy impact on the economy, and those associated with the US Fed’s decision to reduce asset purchases to light of the growing inflation risks.

Among the moves announced by the PBOC is to keep the yuan more flexible in the foreign exchange market.

(with source Askanews)

Source: RSS Economia by

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