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

Author/Editor:

Linxi Chen ; Ding Ding ; Rui Mano

Publication Date:

September 28, 2018

Electronic Access:

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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.

Series:

Working Paper No. 18/216

Subject:

English

Publication Date:

September 28, 2018

ISBN/ISSN:

9781484375914/1018-5941

Stock No:

WPIEA2018216

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

17

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