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

_IMF Working Papers, September 28, 2018_

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## Bibliographic details
- Authors: Linxi Chen, Ding Ding, Rui Mano
- Published: September 28, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484375914.001

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### 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.
- The paper asks whether the reflation was driven by capacity cuts in coal and steel or by a strengthening of aggregate demand.
- 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.

### Key findings and statistics
- Capacity reduction policy target sectors: coal and steel industries.
- Duration of prior negative producer price inflation: more than fifty consecutive months.
- Maximum contribution of capacity cuts to coal and steel price increase: at most 40 percent.
- Possible primary driver identified: pickup in aggregate demand, possibly due to the government’s stimulus package in 2015-16.

### Subject matter and keywords
- Subjects: Economic sectors, Environment, Financial crises, Metal prices, Mining sector, Non-renewable resources, Prices, Producer price indexes, Producer prices.
- Keywords: capacity reduction, China, demand factor, Global, Metal prices, Mining sector, Non-renewable resources, PPI index, PPI inflation, PPI reflation, producer price index, Producer price indexes, Producer prices, steel industry PPI, supply-side structural reforms.

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_Source: https://www.imf.org/en/publications/wp/issues/2018/09/28/chinas-capacity-reduction-reform-and-its-impact-on-producer-prices-46223_