China’s number of investors grew in April at slowest in 13 months

The number of China’s new investors grew in April at its slowest pace in 13 months, hit by a lack of upside momentum for the stock market and persistent worries over policy tightening.

The number of new investors for the A-share market increased by 1.7 million in April, or 3.1 per cent year-on-year, its slowest since March 2020, data from the China Securities Depository and Clearing Corporation Limited (CSDC) showed.

Total investors stood at 185.6 million by April, up 12.5 per cent on the year, it added.

The benchmark CSI300 index closed up 2.4 per cent on Friday, but was 14 per cent off an all-time high hit on Feb. 18, as worries over lofty valuations, policy tightening and Sino-US tension weighed on sentiment.

The index has been trading in narrow ranges since early March, when it tumbled as much as 17 per cent from its record high, dampening investor appetite for equities.

Analysts and traders said the stock market would probably remain rangebound, given inflation worries and the central bank’s tightening bias, thanks to a solid economic recovery from the coronavirus outbreak.

The central bank tightening will not be very strong in the short term, although inflation expectations will still dampen market sentiment to some extent, Vanho Securities analysts said in a note. Chinese money and lending data on Wednesday showed bank lending and broader credit slowed more than expected in April as the central bank gradually scales back pandemic-drive stimulus.

A metal coatings plant in China’s manufacturing hub has been hit by price increases of up to 30 per cent for raw materials including steel, aluminium, thinner and paint since the Chinese New Year in February.

The firm has had no choice but to pass most of these higher costs on to its clients, including those in the United States, said King Lau, who helps run Dongguan-based Kam Pin Industrial Ltd, in Guangdong province.

“Our customers understand, because it is happening to many different kinds of industries including home appliances, mobile phones, vehicles,” Lau said, referring to price hikes by Chinese exporters.

Investors are increasingly worried pandemic-driven stimulus measures could super-charge global inflation and force central banks to tighten policy, potentially curbing the recovery.

With their profit margins already tight, Chinese factories are passing on higher raw material and component costs to overseas clients, which will only reinforce the inflation loop.

Prices of Chinese goods imported by the United States climbed 2.1% for the year ended in April, the largest 12-month advance since March 2012. Open https://www.bls.gov/news.release/ximpim.nr0.htm data.

In a sign of the higher prices filtering into retailers, US consumer prices climbed the most in nearly 12 years in April.

“With supply-chain bottlenecks in many industries, and world demand steadily recovering, (Chinese) producers are increasingly able to pass on higher raw material costs to their overseas customers,” said Frederic Neumann, co-head of Asian Economics Research at HSBC.

On DHgate, a Chinese e-commerce site that helps small Chinese manufacturers sell products overseas, prices of clothing and footwear have surged about 30% from a year earlier, while prices of transportation products such as scooters and bicycles have risen as much as 15%, the platform told Reuters.

The surge was due to the “drastic” rises in raw material prices and semiconductors, as well as more costly cross-border logistics, Beijing-based DHgate said.

The willingness of Chinese factories to pass on higher costs to protect their margins contrasts with the reluctance of Japanese manufacturers to raise selling prices and risk losing market share.

“Chinese exporters enjoy increasing pricing power in world markets,” Neumann said.

Wang Zengda, manager at Trinx Bikes in Guangzhou, said for many of his factory’s orders, delivery times are over a year out and customers are open to the idea of re-negotiating contracts as prices for aluminium and steel, used in bike frames, surge.

Surging producer prices have caught the attention of Chinese policymakers, with the State Council, or cabinet, on Wednesday calling for effective measures to cope with sharply higher commodity prices.

It did not say what the government would do to deal with rising costs. John Johnson, chief executive, China, at consultancy CRU, said if Chinese authorities wanted to alleviate the impact of higher commodity prices there were a few policy levers they could pull, including releasing some commodity reserves, imposing price controls and levying penalties for hoarding.

“Higher Chinese (producer prices) will of course feed into higher import prices and CPI for the US and other major economies, but that will not be a major policy concern for the Chinese government,” Johnson said.