China's factory-gate prices fell 3.6% in June from a year earlier, the steepest drop since July 2023, according to the National Bureau of Statistics. The decline, deeper than the 3.2% fall forecast by economists in a Reuters poll, underscores intensifying deflationary pressure across the world's second-largest economy amid persistent oversupply, waning consumer demand, and global trade tensions.
The latest data reveal a widening gap between weak producer pricing and modest consumer price stabilization. China's consumer price index edged up 0.1% year-over-year in June, rebounding after four straight months of contraction. Core CPI, which strips out volatile food and energy costs, rose 0.7%-its strongest reading in over a year.
Despite the slight CPI uptick, producer price deflation highlights broader economic fragility. "It is too early to call the end of deflation at this stage [as] the momentum in the property sector is still weakening," said Zhiwei Zhang, chief economist at Pinpoint Asset Management. He also pointed to the intensifying "anti-involution" campaign targeting excessive price competition across sectors such as retail, autos, and appliances.
Industrial firms' profits fell 9.1% in May from a year ago, marking the sharpest drop since October, state media reported. Analysts cited a lingering supply glut and sluggish domestic spending as factors fueling the discounting race. "With goods supply continuing to outpace demand, persistent overcapacity means price wars among manufacturers are likely to continue," said Zichun Huang, China economist at Capital Economics.
The producer price slump comes as Chinese policymakers pledge tighter scrutiny of price-cutting strategies, which have done little to revive consumer spending but have eroded corporate margins. "Businesses should be guided to improve product quality and support the orderly phasing out of outdated production capacity," a state-backed newspaper said following an economic policy meeting chaired by President Xi Jinping.
Beijing has implemented trade-in subsidies to support domestic consumption of household appliances and electric vehicles, which analysts say contributed to the modest CPI increase. However, the effects are expected to be short-lived. "With this boost likely to fade soon, we expect underlying inflation to decline again later this year," Huang added.
Exports have remained a relative bright spot, rising 4.8% in May and 8.1% in April, bolstered by demand from Southeast Asia even as U.S. tariffs intensify. Yet overall factory activity shrank for the third consecutive month in June, and employment remains weak.
"The uncertainty in the global trade environment has affected the export expectations of enterprises," said NBS statistician Dong Lijuan.
Market reaction was muted. Mainland China's CSI 300 index edged up 0.19% following the report, while the Shanghai Composite rose 0.3%. The Hang Seng Index in Hong Kong slipped 0.7%, reflecting broader investor caution as U.S. tariff pressures mount.
