Reuters:

How do you read the rise in producer prices, with PPI hitting a 45-month high of 2.8% in April? Is this mainly an energy-led cost shock rather than a sign of stronger underlying demand?

Fu Linghui:

I would like to invite Ms. Wang to answer your questions.

Wang Guanhua:

Thank you for your questions. The producer price index (PPI) for industrial products rose 0.2% year on year from January to April, reversing a 0.6% decline in the first quarter. This marks the first time the index has seen a positive cumulative growth since 2023. In April, the PPI rose 2.8% year on year, an increase of 2.3 percentage points compared to the previous month; it rose 1.7% month on month, an increase of 0.7 percentage point, maintaining a month-on-month upward trend for seven consecutive months. The current rebound in industrial product prices is the result of a combination of factors.

First, the imported inflationary pressure is becoming more apparent. In April, international crude oil prices continued to fluctuate, driving up prices in domestic oil-related industries. Prices in the oil and gas extraction industry rose 28.6% year on year, prices in the petroleum, coal and other fuel processing industry rose 14.2%, and prices in the chemical raw materials and chemical products manufacturing industry rose 8.9%.

The second reason is the driving effect of the optimization and upgrading of China's industrial structure. The manufacturing sector is accelerating its transformation towards high-end, intelligent, and green development. Artificial intelligence is being widely and deeply integrated into various fields, leading to a rapid increase in the demand for computing power and driving up prices of electronics, non-ferrous metals, and basic components. In April, prices for optical fiber manufacturing rose by 115.9% year on year, while prices for electronic specialty materials manufacturing and external storage equipment and components rose by 20% and 22.4%, respectively. Prices in the non-ferrous metal smelting and rolling processing industry rose by 22.5%. The green and low-carbon transformation is accelerating, and market demand in fields such as energy conservation, environmental protection, and green materials is increasing, driving up prices in the biomass fuel processing and waste resource comprehensive utilization industries by 6.8% and 2.8% year on year, respectively. The development of certain emerging industries and the upgrading of manufacturing equipment have driven up the demand for steel, and the year-on-year decline in the ferrous metal smelting and rolling processing industry narrowed significantly compared with the previous month. The price rebound in these industries reflects the increasing supporting and leading role of the new economy and new drivers of growth. The growth of these new impulses is not only conducive to driving the expansion of production and demand in related fields, but also provides positive support for the rebound of product prices and the improvement of corporate profits.

The third reason is the continuous improvement in domestic business environment and market competition order. The construction of a unified national market is advancing in depth, while the governance of production capacity in key industries and the comprehensive rectification of rat race competition continue to show results. As a result, the supply and demand balance in some industries is gradually improving, and prices in related industries are stabilizing and rebounding. For example, in April, prices for lithium-ion battery manufacturing and photovoltaic equipment and components manufacturing rose by 4.5% and 3.8% year on year, respectively, while the year-on-year decline in automobile manufacturing prices narrowed from the previous month.

These analyses show that the faster PPI growth in April was driven by both the imported impact of fluctuating international commodity prices and some domestic factors such as structural upgrading, gradual optimization of market competition order, as well as improved demand in some industries. The rebound in industrial product prices has a positive effect on improving corporate profit expectations. However, it should be noted this price recovery is not yet balanced, with the price increase of upstream production materials being relatively more significant. We need to pay attention to the potential impact on the costs of midstream and downstream enterprises. Looking ahead, there are still many uncertainties and unpredictable factors in the external environment, and the trend of international commodity prices remains uncertain. Their impact on domestic industrial product prices, as well as enterprise production and operations still needs further observation and assessment. Thank you.