China export’s soar but factory prices rise

China’s exports have surged, driven by post-lockdown demand from the US and Europe, while factory gate pricing has risen at the steepest rate for more than three years.

China’s economy grew 18.3% in the first quarter of 2021 compared to the same quarter in 2020, in its biggest GDP jump since China started keeping records in 1992. Although consideration has to be given to the 2020 COVID-19 effect with the early outbreak being recorded in China and much of the country taking its own precautionary measures before the global pandemic spread.

China has set an economic growth target of 6% for 2021, after scrapping its target last year.

China’s impressive figures continued in April, with exports surging by more than 32% against last year, while imports grew 43%, its fastest pace in over 10 years.

Comparing 2021 growth with 2020, when the country was brought to a virtual standstill by lockdown measures, does skew the figures and the world’s second largest economy faces some major challenges. GDP growth is expected to slow, as pandemic-driven supply chain disruption causes significant challenges, with the movement of goods and availability of empty container equipment and airfreight capacity on passenger flights, pushing up the cost of shipping.

Last week’s, purchasing managers’ index showed that China’s factory activity growth slowed in April, while data from China’s National Bureau of Statistics revealed that the producer price index jumped 6.8% in the year to April, up from 4.4% in March.

The increase in factory gate inflation was driven by a 15% spike in commodity prices, in the year to April, and may result in higher sourcing costs for some importers, creating a dilemma for businesses working to bounce back from the coronavirus crisis, on whether to absorb costs, or pass them on to consumers. 

Although the consumer price index rose 0.9% last month, up from 0.4% in March, that remained below forecasts of a 1% rise and may encourage central banks not to raise interest rates, which would slow the economic recovery. 

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Please contact Grant Liddell for further information and follow the regular updates in our supply chain bulletins.