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Strong PPI is key factor behind foreign trade growth

China’s steadily growing producer prices have been driving up foreign trade in the first half of 2017.

The growth in the Producer Price Index (PPI) was especially strong in the first quarter of this year — 7.4 percent compared with the same period in 2016, the highest growth since the fourth quarter of 2008.

The PPI growth slowed slightly after March, but has still seen strong gains. Among the 40 industrial sectors surveyed, 34 saw year-on-year price increases.

PPI measures the prices of industrial goods. And price growth in industrial goods pumped value of imports and exports in the same period.

“Most of our export products are industrial goods. So if the PPI increases, export values will also increase. The PPI also affects the value of imports. If the prices of low-end industrial goods see an increase, the value of imports will also climb,” said Liu Xuezhi, senior analyst at the Bank of Communications.

That is one reason why, despite a slowing increase in July’s trade data, China’s export and import numbers are still showing good performances this year.

During the first seven months of the year, the total values of outbound and inbound shipments grew 18.5 percent year-on-year, which led to a trade surplus of 1.6 trillion yuan. Experts expect foreign trade values to continue strong growth in the second half of this year.

The PPI is also expected to continue to grow.

“Looking at the overall market, the demand for construction materials is still high. Recently we saw some limits on the supply-side due to environmental protection requirements. But the demand is there and the supply-side is tightening, so the PPI will still remain strong,” said Sun Yonggang, department manager of Chaos Ternary Futures.