China blocks commodity price reports – Analysis – Eurasia Review
By Michael Lelyveld
The Chinese government is fighting a surge in inflation with new reporting rules designed to discourage increases in commodity prices.
On June 17, the government’s top planning agency released the new rules to “normalize behaviors such as the compilation of price indices as well as transparency and disclosure of information,” the official China Daily reported. English.
The rules will take effect on August 1, the National Development and Reform Commission (NDRC) said.
While the extent of the reporting requirements remains unclear, the motivation behind the government’s strategy seems clear.
Compilers of commodity price indexes, mostly private, will need to proceed with caution before reporting large increases, such as those in crude oil, liquefied natural gas (LNG), iron ore, copper and coal in the region. in recent months.
“According to the regulations, authorities can conduct compliance reviews and take disciplinary action for non-compliance,” NDRC said.
News of the new rules came just over a week after the National Bureau of Statistics (NBS) reported that the Producer Price Index (PPI) jumped 9% in May compared to the year before, marking its biggest monthly increase since 2008.
The government has done everything to prevent rising commodity costs from being passed on from ex-factory prices to the consumer market, as the economic recovery from the COVID-19 pandemic is boosting demand for raw materials.
So far, the government has only partially succeeded in preventing producers from passing their higher costs on to the retail market.
The consumer price index (CPI) for the month of May climbed 1.3%, against 0.9% in April. But the more subdued growth was largely due to falling pork prices as farmers rushed to sell pigs following news of African swine fever outbreaks.
The NDRC now appears to be grappling with the commodity price bubble on several fronts at once, hoping to soften a larger peak in the CPI for June.
In early June, Bloomberg News cited an “almost constant barrage of rhetorical and administrative measures to curb the surge in commodities.”
“Officials have raised transaction fees, changed tax rules, censored industry research, urged producers to sell inventory, coaxed trading companies to cut bullish bets, vowed to crack down on ‘malicious’ speculators and more, ”Bloomberg said.
The new rules appear to be an attempt to avoid price pressure by depriving it of market information.
State media reports described the new restrictions as a matter of transparency, suggesting that the higher prices were the result of conflicts of interest.
Publishers of price indices “should be independent from direct stakeholders in the markets for the commodities and services covered by the index”. Relevant supplier information should be “fully disclosed,” China Daily said.
In addition to transparency, some rules imply that pricing activity in commodity markets should be restricted. The Communist Party-affiliated Global Times said the measure “was aimed at normalizing market prices.”
“To ensure that the price index reflects the true market conditions, the price index named under ‘China’ and ‘State’ must provide the proportion of the scale of market transactions where data is collected on the national market so that the sample data can reflect market prices for the whole country, ”the newspaper said.
The rules on control of information follow a pattern first cited by Reuters on May 12 in the coal industry, where a sudden surge in prices led to the suspension of daily reports by three major indexes. The decision to cease publication was touted as an industry initiative.
“Due to the persistent and abnormal fluctuations in the thermal coal markets recently, in order to stabilize market prices … (we) have decided to suspend the publication of reference prices,” said a statement from the China Coal Transportation and Distribution Association.
Withholding market information is one of the many strategies to deal with recent price increases in the coal industry.
On June 18, Reuters reported that the NDRC and the state’s market regulator launched a coal price investigation and a crackdown on speculation. Inspections have been carried out at major coal ports and suppliers have been warned against hoarding, state media said.
While government statements cite transparency, the intention is to exercise greater control over the market.
But Derek Scissors, an Asian economist and resident researcher at the American Enterprise Institute in Washington, argued that the goal of the new rules is to “strengthen their control over price reporting,” with an emphasis on reporting. .
“Yes, it will have an impact on real prices, but the main goal is for the government to be able to more easily report price stability whenever it wants,” Scissors said.
Scissors argued that “there are better ways to impose soft price controls,” such as daily or weekly trading limits.
“You can lift them later, when it’s a game for indefinite control of the price indices,” he said.
On June 27, the NDRC released a statement on the coal market, reported the next day by the Global Times.
The agency said “there was no basis for a significant rise in coal prices.” Prices are expected to fall in July with an increase in hydropower and solar power generation as well as other measures to increase supply, the NDRC said.
The statement could be interpreted in two ways, either as an assurance to the market that relief was on the way, or as a warning to traders that further price increases are unwarranted and would not be tolerated.
At least one case of an alleged crackdown on stock indexes has already been reported, sending a message that appears likely to intimidate index traders.
In May, Reuters reported that a previously reliable agricultural data provider for grains and oilseeds suddenly stopped publishing without explanation on April 29.
Beijing-based consultancy Cofeed was China’s primary source for price and inventory information for soybeans and other commodities. After repeated attempts to contact the company, Reuters discovered that their offices had been sealed off by police.
Cofeed “would have fallen victim to the authorities,” Reuters reported on June 17.
“Independent analysts who report on the Chinese grain industry have reportedly been arrested and their online businesses shut down to prevent them from telling the truth about the country’s below-average harvest,” Australian agency ABC News said.
China has had a bitter experience with bouts of inflation and non-market measures.
The country experienced double-digit price spikes in 1988-1989 and again in 1994 with more moderate increases in 2007-2008 and 2011, but consumer prices have remained relatively stable since then.
The Chinese government threatened to take serious steps to control market prices in January 2008 after inflation hit 4.8% in 2007, the highest rate in the previous 11 years.
Despite growing criticism of its non-market policies, the cabinet-level Council of State has ordered a freeze on fuel prices, utilities and transportation costs. A week later, the NDRC announced a series of price controls on food and consumer goods.
During the 2008 crisis, government enforcement proved patchy, as critics warned that rigid controls would only lead to hoarding, shortages and black market activity.
A month after the announcement of the controls, consumer inflation jumped to 8.7%. Prices for the year as a whole rose 5.9% before falling 0.7% in 2009, according to data from the International Monetary Fund.