BEIJING: This year’s runaway coal prices in China sparked by the commodity’s shortages, the attendant fears about possible power shortages during the winter/heating season, and potential implications for the economy, are not only giving the markets the jitters but raking up bitter memories of last year.

       That was when soaring pork prices tested the local market nerve and prompted the national government to step in to contain them in quick time, so as to preempt broader inflation.

       Despite macroeconomic concerns among a few market circles, analysts expect that China’s GDP growth in the fourth quarter may yet rebound to above 5% as the government will likely further expand fiscal spending to boost domestic demand and investment.

       China’s GDP grew at 4.9% year-on-year (y-o-y) in the third quarter, down from 7.9% in the second quarter.

       Xu Hongcai, deputy director of the China Association of Policy Science’s economic policy committee, said the government has accelerated the issuance of local government special bonds and it is likely to loosen credit and financing policies for companies.

       “The prices of major commodities and raw materials will remain elevated in the fourth quarter and they are unlikely to drop substantially in the near term,” Xu said.

       “We’ll likely see a mild rebound of growth in the fourth quarter as the government will expand fiscal spending to shore up growth. It appears that policymakers will use every possible tool to avoid further deceleration in GDP growth.”

       As China is to enter a peak winter season for power consumption, the country’s energy situation has prompted economists to ponder how long it would take for the pressure of power shortage to be eased and how much of an impact it could have on the Chinese economy, a major engine for global growth.

       China’s policymakers have acted swiftly to rein in coal prices and ensure adequate supplies. For, the fossil fuel, being key to energy, remains pivotal in the country’s growth.

       While the country has been pushing for green development, coal still accounts for about 57% of China’s primary energy consumption while coal-fired power generation makes up about 70% of the country’s total.

       Some analysts estimate that if the shortages of coal and power supplies are not addressed properly, they could hurt China’s industrial production and drag down the overall economic growth.

       Higher prices of coal-fired electricity would mean greater production costs for companies, especially those in the energy-intensive upstream industries, and could drive up prices of other raw materials, ultimately pushing inflation higher.

       Economists at investment bank China International Capital Corp (CICC) said that growth of China’s factory gate inflation, which already hit a record high in September by rising 10.7% y-o-y, will likely remain above 10% in October.

       Meanwhile, growth of the country’s consumer prices could reach nearly 2%.

       CICC analysts also forecast that energy shortage could reduce China’s GDP growth rate in the fourth quarter by 0.1 to 0.15 percentage point.

       Lu Ting, chief China economist at Nomura Securities, said China’s efforts to ease the power shortage pressure would help enable growth of industrial production to rebound in the fourth quarter; but, rising power prices could pile inflation pressure on the economy.

       “Amid Beijing’s rising efforts to boost coal supply and mitigate power outages, we expect industrial production growth to rebound slightly to around 3.5% y-o-y in October from 3.1 % in September,” Lu said in a research note.

       Lu estimated that the impact of rising power prices on consumer prices could eventually be close to 0.4 percentage point with the consumer price inflation likely to be around 1.6% in the fourth quarter.

       The impact on factory gate inflation would be much more direct as the year-on-year producer price inflation in the fourth quarter could be as high as 11.8%, according to him.

       Robin Xing, chief China economist at Morgan Stanley, said that the actual impact of rising electricity prices on downstream producer and consumer inflation could be limited in the near term as the government has vowed to ensure stable power prices for households, agriculture and public services.

       In addition, the pass-through effect of rising power prices on downstream producers and consumers could remain subdued amid low market concentration and sluggish consumer demand, which could pose additional margin pressures for some downstream producers, although strong external demand may provide some relief, Xing said.

       Analysts said that China’s GDP growth may further decelerate in the fourth quarter amid strong headwinds, which could prompt policymakers in Beijing to step up efforts to shore up growth and keep its monetary and fiscal policies accommodative for the rest of the year and the spring of next year.

       Broad-based or targeted cut of banks’ reserve requirement ratio remains a viable choice for the People’s Bank of China, the central bank, to ensure sufficient liquidity in the market, analysts said.

       But chances of the central bank actually slashing interest rates appear to be slim in light of rising inflation, they hastened to add. — China Daily/ANN