中国经济：持续的通缩压力

China Economy Persistent deflationary pressure Frank Liu(852) 3761 8957frankliu@cmbi.com.hk China’sYoY CPIbounced back to positiveterritoryin June while its MoMgrowth remained negative. Energy prices rebounded while food, durable goodsand servicesremained lethargic. PPI slumped tothetwo-year trough albeitwithrisingenergy prices.Industries with a high export share faced higherdeflationary pressure, while fierce supply-side competition remained in mostsectors. Deflation pressure may continue to accumulate due to weak consumerdemand and softening global trade, despite policymakers’ recent effortsto curbdisorderly competition from the supply side. China economy may face furtherheadwinds in 2H25 given the intensifying deflation, softening property sectorand payback effect fromthetrade-in scheme, in our view. China may graduallyshift its policyframework towards economic rebalancing with consumptionstimulus and capacity reduction after the country could reach a trade deal withthe US. We expect a further 10bps LPR cut and 50bps RRR cut in 4Q25 toboost the property sector and consumption.We estimate thatCPI and PPI mayrise from 0.2% and-2.2% in 2024 to 0.3% and-2% in 2025. Bingnan YE, Ph.D(852) 3761 8967yebingnan@cmbi.com.hk CPI returned to positive amid rebounding energy prices.China’sCPIYoY edged up to 0.1% in June from-0.1% in May,better than marketexpectation at 0%.In sequential terms, CPIremained negative at-0.1% inJune compared to-0.2% in May.Foodpricefurther dropped 0.4% MoM inJune aspork price dipped 1.2% MoM.High-frequency data indicatedcontinued declines in vegetable pricesby0.5% MoMin early July, while porkex-factorypricerebounded.Vehicle fuelpricerebounded by 0.3%MoMasglobal crude oil pricesurged in early June. We expectCPI tocontinue itsrecovery in July due to the rising gas and food prices, although a higherbase maypull its YoY growth down to-0.1%. Forecast numbers fromFeb2025Source: Wind,CMBIGM Core CPIremained subdued due to falling durable goods and tourismprices.Core inflationedged up to0.7%YoYinJune from 0.6% in May,whileitsMoM growth stayed flat at 0%.Durable goods including telecomequipmentand vehicles dropped 0.2% and 0.4% respectively while homeappliancesstayed unchanged at 0%, amid intensifying price competition.It’s worth noting that the discounts fromthetrade-in scheme are excludedfrom CPI calculations. Discretionary goods also saw price declines asfootwear and clothing both dropped by 0.1% in June.Service pricestayedflat at 0% MoM in June, astourism price dropped 0.8% in June while medicalservice and housing rent rose by 0.3% and 0.1%.Other services remainedsubdued, with no price change recorded in categories such as education,express,telecommunicationsand homeservices. Source: Wind, CMBIGM PPIslumped further albeitwithrising crude oil price.YoY contractionofPPIfurtherwidenedto-3.6% inJunefrom-3.3%in May, marking its lowestlevel since July 2023 and missing the market expectationat-3.2%.TheMoM growthremained flat at-0.4%for the fourth consecutive month, furtherweighing on the profit margin ofthemanufacturing sector.PPI ofminingindustriesrebounded to-1.2% in June from-2.5%. Extraction of crude oil &gas rebounded to 2.6% MoM in June from-5.6%, while coal dipped 3.4%.Non-ferrous metalsrose 1.3% MoM thanks to robust AI-related demandwhileferrousmetalsdropped 2% MoM, indicating thatdomestic constructionactivities remained soft.Final consumption goodsdropped 0.1% in June, asfood and durable goods dipped 0.3% and 0.1% respectively. Industries witha high export share are facing price pressure, as computers & electronics,electrical equipment and textile dropped 0.4%, 0.2% and 0.2% respectively.Fierce supply-side competition mildly eased as the YoY decline of electricvehicles, photovoltaic equipmentand lithium batteriesnarrowed by 0.4%,1.2% and0.2%.We expect the subdued PPIshould persistdue tothe drag fromthetrade warand fierce price competition among manufacturers, whichshould further weigh on overall corporate earnings. Deflation pressure might push China to gradually shift its policyframeworktowards economic rebalancing.The policymakers haveacknowledgedthedisruptive impact of fierce supply-side price competition,as thetopleadershipjust vowed to curb disorderly low-price competitionamongenterprises.However,deflation pressure may continue toaccumulatedue to the softening global trade and subdued domesticdemand, aside from the supply side.China economy may face furtherheadwinds in 2H25 given the intensifying deflation, softening property sectorand payback effect fromthetrade-in scheme.China may gradually shift itspolicy framework towards economic rebalancing with consumption stimulusand capacity reduction in future after the country could reach a trade dealwith the US.We expect a further 10bps LPR cut and 50bps RRR cut in 4Q25to boost the property sector and consumption. Source: Wind, CMBIGM Source:Wind, CMBIGM Source: Wind, CMBIGM Source:Wind, CMBIGM Source: Wind, CMBIGM Source: