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Once again, the Danger Alarm Comes from China, RI must be Alert!

Until now there has been no positive news from the Bamboo Curtain Country. Economic data has not shown signs of a strong recovery. As is known, China has long been an engine of global growth. However, in recent times, the economy of one of these superpowers has slowed down, worrying many parties.

The National Bureau of Statistics reported on Friday (10/13/2023) that the consumer price index for September was at 0% ( year on year /yoy), below the median estimate of a 0.2% increase in a Reuters poll .  Inflation is even lower than that recorded in August 2023, which was recorded at 0.1%.

This suggests an uneven post-Covid recovery in the world’s second-largest economy that may require further policy support.

However, core inflation – excluding energy and food prices – rose 0.8% in September compared with a year earlier, the bureau said in a separate statement. This rate of increase is similar to that recorded in August.

Meanwhile, China’s producer price index fell or recorded 2.5% deflation from the previous year (yoy), weaker than expectations of 2.4% deflation, after 3% deflation in August 2023. However, the decline in factory prices was the smallest in seven last month.

Low prices underscore what China’s top leaders have called a “meandering” economic recovery after the country emerged from tight Covid-19 restrictions towards the end of last year.

China is a country that is very different from other large countries, most of which are still struggling with high inflation after the Covid-19 pandemic reached its peak.

Today’s inflation report may reignite concerns that China is on the verge of deflation. Although producer prices experienced a decline in September, the decline was still the 12th consecutive monthly decline on an annual basis.

“CPI inflation which is at zero shows that deflationary pressures in China are still a real risk to the economy,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, quoted by CNBC International.

“The recovery in domestic demand will not be strong without a significant boost from fiscal support. The impact of the slowing property sector on consumer confidence continues to weigh on household demand,” he added.

Beijing has targeted its policy support even as economic data shows growth remains weak. The ongoing debt crisis at China’s two largest real estate developers is further weakening consumer confidence.

Weak food prices are a major drag on consumer prices in September 2023 although China’s National Bureau of Statistics said this was due to high food prices last year.

On Friday, official data showed China’s food prices collectively fell 3.2% in September compared with a year earlier.

In particular, the price of pork, a major staple meat in China’s diet plunged 22% last month compared to a year ago. This happened because livestock and meat prices collectively fell 12.8% and fresh vegetable prices fell 6.4%.

Services inflation was at a 19-month high of 1.3%, Capital Economics said.

This shows that China’s low inflation rate is not caused by domestic weakness. Rather, it appears to be related to overcapacity in the industry as the surge in global demand for goods due to the pandemic has reversed. Core goods inflation remained under control at 0.3% year-on-year.

Month-on-month, consumer prices edged up 0.2% in September, with food prices increasing 0.3% representing a decline of 0.2 percentage points from August’s figure compared to the previous month.

Exports and Imports Continue to Decline

China reported a smaller-than-expected decline in exports in September 2023 according to customs data released Friday (13/10/2023). In US dollars, exports corrected 6.2% (yoy) in September. The figure was less than the expected 7.6% correction forecast by analysts in a Reuters poll .

Imports also contracted by 6.2% (yoy) in September 2023 – slightly bigger than the 6% contraction predicted by a Reuters poll.

China’s exports have been corrected since May this year. The last positive record for imports on an annual basis occurred in September last year.

China’s trade has slumped this year amid sluggish global demand for Chinese goods and weakening domestic demand. The country’s recovery from the pandemic has slowed in recent months, dragged down by a massive slump in the real estate sector.

The International Monetary Fund (IMF) this week cut its forecast for China’s 2023 growth to 5% from 5.2% but maintained its global growth forecast of 3% for this year. The world economy grew by 3.5% last year.

China will report September retail sales on October 18, along with third-quarter GDP figures.

Amid increasing tensions with the United States (US) and Europe in recent years, China has sought to increase its trade with regional partners in Southeast Asia, as well as countries participating in the Belt and Road Initiative. The BRI is a China-led effort to develop regional infrastructure such as ports and railways.

As of the end of September, China said it had operated trains to 217 cities in 25 European countries. Cargo transported via the railway will account for 8% of China-EU trade in 2022, up from 1.5% in 2016, Chinese officials said this week.

China also claims that imports and exports with Belt and Road partner countries will reach US$ 19.1 trillion between 2013 and 2022.with average annual trade growth of 6.4%.

The third Belt and Road Forum is scheduled to be held in Beijing on Tuesday and Wednesday. Russian President Vladimir Putin is expected to attend.

The impact of sluggish exports and imports for Indonesia

China is Indonesia’s largest trading partner country. Total trade between China and Indonesia will reach US$ 133.65 billion in 2022 or an increase of 17.70% compared to 2021. The value of Indonesia’s non-oil and gas exports to China will reach US$ 63.5 billion in 2022.

Indonesia’s exports to China reached US$ 65.92 billion while imports from China reached US$ 67.72 billion. Both exports and imports are the highest in history. In January-May 2023, exports to China were recorded at US$ 26.41 billion or an increase of 12.2%. This value is equivalent to 25% of total exports. Imports were recorded at US$ 25.52 billion or down 2.2%.

The World Bank once warned that  the economic slowdown in China was one of the risks that could correct Indonesia’s economic growth. However, the impact is more minimal than other ASEAN countries, such as Malaysia and Thailand.

The world bank also noted that  the effect of a simulated 1% slowdown in China would result in a 0.1 percentage point decline in Indonesia’s growth rate to a decline of almost 0.6 percentage points in Malaysia.

On the other hand, the International Monetary Fund (IMF) previously warned that China’s economic slowdown was one of the risks that could change the basic path of Indonesia’s economic growth projections. The combination of a sharper-than-expected slowdown in the property sector, Covid-19 and an inadequate policy response raises the risk of a sharp slowdown in China’s economic activity. The IMF categorizes this risk at medium level.

The impact is weaker exports, reduced FDI inflows, increased uncertainty which leads to more sluggish investment.

Source : CNBC