China's Capacity Reduction Reform and its Impact on Producer Prices

18 Pages Posted: 16 Oct 2018

See all articles by Linxi Chen

Linxi Chen

Duke University

Ding Ding

International Monetary Fund

Rui C. Mano

International Monetary Fund

Date Written: September 2018

Abstract

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

Chen, Linxi and Ding, Ding and Mano, Rui C., China's Capacity Reduction Reform and its Impact on Producer Prices (September 2018). IMF Working Paper No. 18/216. Available at SSRN: https://ssrn.com/abstract=3267240

Linxi Chen (Contact Author)

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Ding Ding

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Rui C. Mano

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://sites.google.com/site/ruimano/

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