China News Service:
My question is about PPI. Since this year, global commodity prices have risen overly quick. China's PPI set a new record high in September. In recent years, we have discovered a trend of the Purchasing Price Index of Raw Material (PPIRM) and the PPI being seriously inverted. What is the reason behind this? What do you think the impact of this will be on the economy? Thank you.
Yao Jingyuan:
As I mentioned earlier, the prices of bulk raw materials are rising. You mentioned that the PPI in September was up by 10.7%. What does this mean? It seemed very serious as it was a record high since 1995. I have explained that this is because commodity prices are rising worldwide. That is the most fundamental reason. China is a big importer and exporter, so it is bound to be transmitted to China. The industries seeing rising PPI are mainly upstream industries, such as coal, oil, natural gas, non-ferrous metals and ferrous metals. The upstream commodity prices are rising overly high and fast. You mentioned that it would lead to PPIRM and PPI being inverted. In other words, the downstream manufacturers are being forced to accept the prices that are rising overly high and fast. What situation do downstream manufacturers face currently? Generally speaking, there is still overcapacity in the market. In certain sectors, it is still buyers' market. Therefore, it is impossible for enterprises to pass on the higher prices of bulk raw materials to the market through end products, because if they do so, they may lose the market as the result of increased prices. In order to compete, they cannot raise their prices. However, this situation may somehow push them to strengthen management and push for technological progress in order to absorb the increased prices of upstream raw materials . But on the other hand, the PPI of upstream industries are rising so high and fast, so it is hard for enterprises to absorb it all in a short time. And this indeed make the downstream enterprises feel pressured when running their business. This was a structural issue we faced as China's economy went downward from the second quarter to the third quarter.
So, what should we do now? First, we should ensure the supply and stable prices of upstream commodities. Some measures have been effective in certain sectors, such as with copper, which reached its highest-ever price in the second quarter. But, the price rises for copper, nonferrous metal and steel have now dropped. If we make great, solid efforts to ensure supply and stabilize prices as one of the key macro policies in the fourth quarter, we surely can help enterprises overcome the difficulties. In addition, I think we can also introduce some better measures to ensure supply and stabilize prices of upstream commodities and help downstream manufacturers overcoming difficulties with practical policies and measures. Thank you.
