The term "two squeezes" has recently appeared in this newspaper, initially used to describe the rising costs of raw materials in the upper part of the fertilizer industry. This situation created a dilemma for companies at the lower end, who struggled to raise prices without harming farmers' interests. However, upon closer examination of recent economic data released by the National Bureau of Statistics, it becomes clear that the "two squeezes" phenomenon is now widespread across the entire economy.
According to the latest statistics from the National Bureau of Statistics, in the first three quarters of this year, the retail price index for goods in China rose by 0.8% year-on-year, while the ex-factory 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 the final consumer prices have only risen slightly, the cost of inputs for businesses has gone up significantly—creating a major imbalance.
This trend is also evident in the oil and chemical industries. In September alone, the ex-factory price of crude oil jumped by 33.2% compared to the same period last year, and coal prices rose by 21.7%. Among the 139 chemical products tracked by the China Petroleum and Chemical Industry Association, 69 saw a decline in August compared to July, accounting for nearly half of all products, while only 59 showed an increase. This suggests that even within the chemical sector, prices are falling more often than rising.
On one side, raw material costs are soaring; on the other, final product prices are barely increasing. This creates a "two-squeeze" environment for many industrial enterprises, squeezing profits from both ends. It's like a person suffering from bloating and unable to digest properly—long-term pressure can lead to weight loss, or in business terms, reduced profitability. This is clearly reflected in the fact that fertilizer companies have not seen significant profit growth despite rising input costs.
So why do companies face this "two-squeeze" problem? Many economists point to structural issues in the economy, such as excessive investment and slow growth in consumption capacity. This has long been a recurring issue in China’s economic model. Several prime ministers have previously discussed the challenge of boosting domestic demand, and this problem is often labeled as a "structural issue." While economists emphasize the need to focus on sales, in practice, it's difficult to achieve in China due to limited consumer spending power.
Most downstream consumers operate in competitive markets, with their purchasing power determined by personal income or the profits of small and medium-sized enterprises. Without large-scale tax cuts or capital injections, it's hard to boost consumer spending. On the other hand, upstream investments are dominated by state-owned enterprises, which have easy access to bank loans and government support. These entities often invest heavily in energy and raw material projects, but the resulting production capacity depends on the market demand from the lower end.
Projects like ethylene plants, coal-to-oil initiatives, and integrated facilities led by local governments involve hundreds of billions in investment. Yet, the real concern lies in whether the market will absorb this supply. If demand fails to keep up, it could trigger a severe "two-squeeze" scenario for related companies.
In conclusion, the "two-squeeze" phenomenon is causing serious harm to corporate profits and overall economic development. It reflects a deep imbalance in China’s economic structure. As the country strives to build a harmonious society, addressing this issue is essential to ensure a healthier and more sustainable economy.
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