Chinese companies are struggling as commodity prices started rising last year and major developed countries unveiled liquidity injections and expansionary fiscal policies for economic reopening after the impact of the pandemic. The consensus among economists is that strong industry revival, reduction in inventories, higher appetite for risk, and depreciation of the U.S. dollar all combined to push commodity prices higher. Rising raw material prices may push up companies’ costs. They either have to absorb such rising costs and settle for lower profits or raise product prices to remain profitable and grow. If they raise the prices of their products or services, it may have an impact on downstream consumption, aggravate inflation and crimp the global economic recovery, experts said.
Exporters have already felt the pressure. Since March 17, more than 20 leading Chinese papermakers, including Shandong Chenming Paper Holdings and Shandong Sun Paper Co, have announced they will raise paper prices by CNY100 to CNY300 per metric ton to combat soaring raw material and energy prices. Likewise, heating, ventilation and air-conditioning companies best represented by Midea, Haier and Daikin announced they will raise their prices by 8% to 10% in China from March 16. The surging prices of commodities like copper, iron and aluminum, whose negative impact has been amplified by the Covid-19 pandemic, have left these companies with no better choice.
The textile industry is not immune. Xu Xianyou, Account Manager of Jiangsu High Hope Textile Import and Export Co, said orders of the company have been significantly contracting due to unstable raw material prices. “Usually, garment companies will place larger orders to textile makers for the designs that are received well among consumers. It is the most economical and efficient way for garment companies, but they have cut their orders this year. Yet, our company’s headcount remains unchanged and so do people’s working hours. As a result, our costs have increased,” Xu said.
During an executive meeting of the government, chaired by Premier Li Keqiang on March 21, it announced it will refund around CNY1 trillion worth of value-added tax credits, which is nearly two-thirds of total VAT credit refunds this year, to micro and small enterprises and self-employed households across all sectors. The purpose is to help market entities cope with difficulties, stabilize market expectations and ensure employment. Zhu Haibin, JP Morgan’s Chief China Economist, said rising global commodity prices will intensify inflationary pressures facing China. But the pressure is unlikely to be massive enough to significantly restrict the country’s macro-economic policy space, the China Daily reports.
