The Chinese National Bureau of Statistics will release September’s inflation data today. Chinese inflation has been dropping throughout 2020 from
The Chinese National Bureau of Statistics will release September’s inflation data today.
Chinese inflation has been dropping throughout 2020 from a high of 5.4% in January. With inflation forecast to shrink to 1.8% in September, signs indicate that China’s economy is not reviving from February’s pandemic-induced supply chain and export collapse. Shrinking inflation indicates that domestic prices are declining for various reasons, chief among them a decrease in exports as a result of lowered European and US demand. As Chinese trade finds a new equilibrium, the stability of exports is reliant on foreign demand, which is variable due to a resurging pandemic in the US and Europe.
Falling Chinese inflation will not subsequently lower foreign prices, and any further decrease in the Chinese trade surplus will be the result of decreased foreign demand for Chinese goods and services. In this context, investors should pay attention to the Chinese Communist Party’s Fifth Plenum on October 26, which will release more details about Xi Jinping’s “dual circulation” development model. This plan would have Beijing pivot its export-based economy towards one that is driven instead by domestic demand, and could serve to promote foreign investment if it implements further economic and financial reforms.
Wake up smarter with an assessment of the stories that will make headlines in the next 24 hours. Download The Daily Brief.