Growing Fear of D in China... Will Additional Stimulus Measures Be Announced?

As concerns over an economic downturn grow due to prolonged low inflation in China, attention is focused on whether the Chinese government will introduce additional stimulus measures.

On the 10th, the National Bureau of Statistics of China announced that the CPI growth rate for June was 0.0%. This figure is below both the previous month's rate (0.2%) and the forecast (0.2%). Accordingly, China's CPI growth rate has remained in the 0% range for four consecutive months following March (0.7%), April (0.1%), and May (0.2%).

The price decline was mainly driven by a sharp drop in pork prices, similar to the previous month. Last month, meat prices including pork fell sharply by 7.2% year-on-year. The decline was larger than in May (-3.2%). Non-food and consumer goods prices fell by 0.6% and 0.5%, respectively. Housing costs remained steady, but transportation and daily necessities and services were recorded at -6.5% and -0.5%, respectively.

Due to persistently weak consumer sentiment and the impact of falling international oil prices, the year-on-year Producer Price Index (PPI) growth rate recorded -5.4%, the lowest level since January 2016. This figure fell below both the previous month’s rate (-4.6%) and the forecast (-5.0%), marking six consecutive months of negative growth.

The market is paying close attention to whether the government will introduce additional stimulus measures to counter deflation (price decline). Zhang Ziwei, Chief Economist at Pinpoint Asset Management, explained, "The risk of deflation is very real." Bloomberg News interpreted the indicators released that day as evidence of weakening recovery, with deflation concerns weighing down confidence in economic recovery. It also reported, "This will likely trigger more speculation about potential stimulus measures to boost the economy."

David Qu, Bloomberg Economics’ China Economist, pointed out, "China’s 0% inflation rate and further decline in producer prices suggest that China’s post-COVID rebound has lost momentum," adding, "Weakening momentum in prices signals weak demand, which clouds growth prospects." He also said, "The need for additional stimulus measures from the People’s Bank of China is increasing."

Previously, monetary authorities lowered the loan prime rate (LPR), the real benchmark interest rate, by 0.1 percentage points last month, but this move was widely regarded as disappointing, falling short of expectations in terms of timing and scale. Bruce Pang, Chief Economist at Jones Lang LaSalle, a U.S. real estate consulting firm, forecasted, "The likelihood of the government introducing strong macroeconomic policies is very low."

Meanwhile, China is set to announce its second-quarter Gross Domestic Product (GDP) growth rate on the 17th. Local experts in China expect the second-quarter GDP growth rate to exceed 6%, supported by base effects. The first-quarter growth rate was 4.5%, and the Chinese government’s annual target for this year is around 5%.