“Our research indicates that there’s a strong correlation between inflation in China and consumer inflation in the U.S.,” Mr. Ding said.
Chinese leaders have also expressed concern over the situation, though partly for other reasons. China’s strong economic recovery from the Covid-19 pandemic has relied heavily on the country’s busy factory sector. If manufacturers keep struggling with profitability, that could slow China’s rebound. It could also lead to more domestic inflation, creating another headwind for Chinese growth.
The latest gauge of China’s factory activity showed signs of a slowdown. The official manufacturing purchasing managers index edged down slightly to 51.0 in May from 51.1 in April, led by a cool-off in new orders, though the index remains above the 50 mark that separates activity expansion from contraction. A subindex tracking small enterprises fell into contraction in May after two months of expansion.
“Now that the economy is already above its pre-virus trend, we think the pace of growth will wane this year,” wrote Julian Evans-Pritchard, senior China economist at Capital Economics, in a research note Monday.
Officials have sounded repeated warnings over higher input costs in recent weeks, including ordering leaders in the commodity industry to avoid market manipulation, hoarding and other activities that could push prices for raw materials higher. An index tracking purchasing prices of key raw materials for Chinese manufacturers rose to 72.8 in May, the highest level since November 2010, according to official Chinese data.
In a recent survey conducted by the Shanghai branch of the People’s Bank of China, about 47% of manufacturers said they plan to adjust prices in the near term. And 37% said they will be cautious about accepting new orders, wrote Lü Jinzhong, head of research with the PBOC’s Shanghai branch in an official publication in May. More than 38% of those surveyed expect prices for raw materials to continue climbing for another quarter on average, the article said.
Mr. Lü also said China should consider letting its currency strengthen appropriately to resist effects from imported inflation amid higher global commodities prices.
Another problem for many Chinese factories is that there hasn’t always been enough workers to keep up with the surge in global demand for their goods.
David Li, general secretary of the Asia Footwear Association in Dongguan, a manufacturing boomtown in southern China, said many shoe factories in the region saw a surge in orders this year but have struggled to recruit enough young workers.
“This isn’t just a problem confined to Guangdong, it’s an issue all over the country,” he said. “Young people nowadays would rather be deliverymen than working for factories.”
Foshan Modern Copper & Aluminum Extrusion Co., an aluminum processing firm with around 700 factory workers in Guangdong province, said the factory is still short 70 workers even after it raised salaries by 10% this year, compared with the usual 3% annual increase before the pandemic.
“Obviously that’s still not attractive enough for many young people,” said Huang Ruifeng, a representative at the company. “Covid likely prompted more workers to stay in their hometowns instead of looking for jobs.”