The term "two squeezes" has recently appeared in the media, describing a growing challenge in China's economic system. Initially used to depict the rising costs of raw materials in the fertilizer industry, it highlighted how upstream price hikes put pressure on downstream businesses, which are reluctant to raise prices for fear of harming farmers. However, recent data from the National Bureau of Statistics shows that this "two squeezes" phenomenon is now widespread across the economy.
According to the latest statistics released this month, in the first three quarters of this year, the retail price index rose by 0.8% year-on-year, while the factory-gate price of industrial products increased by 5.4%. Meanwhile, the purchase price of raw materials, fuel, and power surged by 9.2%. This means that while end-consumer prices have barely risen, input costs for manufacturers have climbed sharply—creating a clear imbalance.
This trend is particularly evident in the oil and chemical sectors. In September alone, crude oil prices jumped by 33.2% compared to the same period last year, and coal prices rose by 21.7%. Among 139 chemical products tracked by the China Petroleum and Chemical Industry Association, 69 saw price declines in August compared to July, while only 59 experienced increases. The overall trend suggests that demand is struggling to keep up with supply, and downward pressure on prices is growing.
This dual pressure—rising input costs and limited ability to pass on price increases—has left many industrial companies in a difficult position. It’s like being squeezed from both sides: the body swells but cannot digest the excess, leading to long-term strain and reduced profitability. For chemical and fertilizer firms, this has already led to stagnant or declining profits, indicating a serious structural issue.
The root cause of this problem is often attributed to imbalances in supply and demand. Overinvestment in certain sectors, especially in energy and raw materials, has outpaced consumer demand. This is not a new issue; previous leaders have repeatedly highlighted the need to boost domestic consumption. However, in practice, it remains challenging. Most downstream consumers are constrained by limited personal income or the financial health of small and medium-sized enterprises. Without significant tax cuts or capital injections, their spending power cannot grow rapidly enough to absorb the surplus.
On the other hand, upstream investment is dominated by state-owned enterprises, which have access to cheap credit and strong government support. These entities continue to expand at a rapid pace, often driven by large-scale projects such as ethylene plants or coal-to-oil initiatives. While these projects may appear impressive, they raise concerns about whether the market can absorb the resulting output. If demand fails to match supply, the result could be a severe "two-squeeze" situation for the entire industry.
In conclusion, the "two squeezes" phenomenon is not just an economic anomaly—it reflects deep-seated structural imbalances that hinder sustainable growth. As the country moves toward building a harmonious society, addressing these issues becomes essential. Only by ensuring a healthier, more balanced economy can businesses thrive and the broader population benefit.
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