China's Capacity Reduction Reform and its Impact on Producer Prices
18 Pages Posted: 16 Oct 2018
Date Written: September 2018
In late 2015, the Chinese authorities launched a policy to reduce capacity in the coal andsteel industries under the wider effort of Supply-Side Structural Reforms. Around thesame time, producer price inflation in China started to pick up strongly after being trappedin negative territory for more than fifty consecutive months. So what is behind this strongreflation-capacity cuts in coal and steel, or a strengthening of aggregate demand? Ourempirical analyses indicate that a pickup in aggregate demand, possibly due to thegovernment's stimulus package in 2015-16, was the more important driver. Capacity cutsplayed a role in propping up coal and steel prices, explaining at most 40 percent of theirprice increase.
Keywords: China, Asia and Pacific, capacity reduction, supply-side structural reforms, producer price index, Time-Series Models, Studies of Particular Policy Episodes
JEL Classification: E31, C22, E65
Suggested Citation: Suggested Citation