IMF Working Papers

China’s Capacity Reduction Reform and Its Impact on Producer Prices

By Linxi Chen, Ding Ding, Rui Mano

September 28, 2018

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Linxi Chen, Ding Ding, and Rui Mano. China’s Capacity Reduction Reform and Its Impact on Producer Prices, (USA: International Monetary Fund, 2018) accessed December 30, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

In late 2015, the Chinese authorities launched a policy to reduce capacity in the coal and steel industries under the wider effort of Supply-Side Structural Reforms. Around the same time, producer price inflation in China started to pick up strongly after being trapped in negative territory for more than fifty consecutive months. So what is behind this strong reflation—capacity cuts in coal and steel, or a strengthening of aggregate demand? Our empirical analyses indicate that a pickup in aggregate demand, possibly due to the government’s stimulus package in 2015-16, was the more important driver. Capacity cuts played a role in propping up coal and steel prices, explaining at most 40 percent of their price increase.

Subject: Economic sectors, Environment, Financial crises, Metal prices, Mining sector, Non-renewable resources, Prices, Producer price indexes, Producer prices

Keywords: Capacity reduction, China, Demand factor, Global, Metal prices, Mining sector, Non-renewable resources, PPI index, PPI inflation, PPI reflation, Producer price index, Producer price indexes, Producer prices, Steel industry PPI, Supply-side structural reforms

Publication Details

  • Pages:

    17

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2018/216

  • Stock No:

    WPIEA2018216

  • ISBN:

    9781484375914

  • ISSN:

    1018-5941

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