A person works in a manufacturing facility of lithium batteries in Huaibei in central China’s Anhui province Saturday, Nov. 14, 2020.
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Persistent weak spot in Chinese consumption will stop companies from charging increased costs — at the same time as manufacturing prices preserve rising, says Leland Miller of China Beige Book International, a U.S.-based unbiased knowledge and analytics firm.
“The most problematic dynamic of China’s recovery — which overall has been very strong in the past year, year and a half — the major problem has been that the consumer’s not all the way back,” Miller, CEO at on the firm, instructed CNBC’s “Squawk Box Asia” on Thursday.
Until there is a “reset” in family spending, companies won’t be able to boost costs a lot, he defined.
“This is essentially gonna be a problem on the production side and, you know, specifically the factory side.”
Miller mentioned the inflation scenario in China proper now is “very focused” and centered on commodities, in addition to factories which have been being squeezed on price.
“Yes, there’s an inflation issue. Yes, it’s gonna be tricky for some of the parties in China. But specifically … it’s on the production side. It has not moved over to consumer side,” he mentioned. “It’s a fairly specific problem in China right now, even if it’s rather intense for the time being.”
Covid influence on companies, retail
Following an earlier success in curbing the unfold of Covid-19, which was first reported within the Chinese metropolis of Wuhan, China’s economic system was among the few in Asia that grew in 2020.
Still, the specter of the virus stays. A latest spike in infections in main metropolis Guangzhou surrounding the Delta variant, which was first recognized in India, has led to mass testing and lockdown of local areas.
“You’re seeing a Covid problem that hasn’t gone away,” Miller mentioned. “As long as Covid is there, you’re gonna have pressure on services, you’re gonna have pressure on retail.”
Despite being “very stable,” the companies sector in China has failed to interrupt out of its rut, he added.
“Every single that we see a month or two of stronger services, you know, it reverses itself,” Miller mentioned. “It has not been a driver of the economy and neither has retail.”
“If you wanna see a healthier economy, or any type of normalcy like people talk about normalcies, you should see strong services, stronger retail and less reliance on manufacturing and commodities,” he mentioned.