China's producer prices unexpectedly rose in September for the first time in nearly five years thanks to higher commodity prices, welcome news for the government as it struggles to whittle down a growing mountain of corporate debt, reports Reuters.
Official inflation data on Friday also showed a pickup in consumer prices, helping to ease investors' concerns about the health of the world's second-largest economy after disappointing trade numbers on Thursday rattled global markets.
Corporate China sits on $18 trillion in debt, equivalent to about 169 per cent of gross domestic product (GDP), according to the most recent figures from the Bank for International Settlements. Most of it is held by state-owned companies.
"An uptick in inflation, if sustained, would be good news for China's ability to service its overhang of corporate debt," Bill Adams, senior international economist at PNC Financial Service Group, said in a note.
"With low interest rates keeping debt service costs in check and producer prices rising, the outlook for Chinese industrial profits is improving."
The producer price index (PPI) rose 0.1 per cent in September from a year earlier, the National Bureau of Statistics said.
While the gain was slight, it was the first time producer prices have expanded on an annual basis since January 2012, and came a bit earlier than the year-end timeframe that some analysts had expected. Producer prices had edged up on month-on-month basis over the summer.
Analysts polled by Reuters had predicted a decline of just 0.3 per cent on-year, after a drop of 0.8 per cent in August.
China's factory prices have been falling since March 2012, and more than four years of producer price deflation have squeezed industrial companies' cash flow.
Profits at roughly a quarter of Chinese companies were too low in the first half of this year to cover their debt servicing obligations, as earnings languish and loan burdens increase. according to a recent Reuters analysis.
However, a construction boom, fuelled by a government infrastructure spending spree and a housing rally, have helped boost prices for building materials from steel to copper in recent months, while coal prices have jumped as the government tries to shut excess mining capacity.
Prices of ferrous metals, non-ferrous metals and coal mining together rose 4.1 per cent on-year, a key factor in the PPI turning positive, the statistics bureau said.
The number of industries registering price increases also rose to 25, eight more than the previous month, indicating that a recovery in Chinese companies' pricing power was becoming more broad-based.
"Debt pressure will certainly be reduced," said Zhou Hao, analyst at Commerzbank AG in Singapore. But he cautioned that China's mounting debt is also a structural problem, and that higher prices for commodities such as coal and steel may be "speculative" in nature.