Commodity import price rising and production stability of Chinese firms

Abstract

Using Chinese Industrial Enterprise data, we examine the impacts of rising commodity import prices on the production activities of Chinese enterprises. We find that increases in commodity import prices lead to a decline in production growth rates and an increase in both short-term and long-term production volatility. The underlying mechanisms of these effects include increasing production costs, an increase in inventories of non-manufactured goods, and a reduction in product competitiveness. Notably, we find that import price increases for essential raw materials, energy, and chemical commodities, as well as those with high import dependence, exert a more significant influence on production volatility. Moreover, supply-side structural reforms and the Belt and Road Initiative prove beneficial in mitigating the adverse effects of rising commodity import prices on Chinese enterprises' production. However, the Russia-Ukraine crisis adversely impacts Chinese enterprises' production by pushing up international commodity prices. Our study offers valuable insights into the transmission of international risks and their ramifications for the production of domestic enterprises in China. The conclusions derived from our research are essential for guiding Chinese enterprises in mitigating external risks and preserving production stability.