After a couple of weeks of healthy gains, the global emerging markets index took a step back on 18 October after the latest Chinese economic data disappointed on two fronts.

On the one hand, growth in the quarter to September was weaker than expected, while on the other industrial prices were stronger than expected raising fears China could be set to ‘export’ inflation to the rest of the world.

Given its role as a manufacturing hub for global companies, including many in the UK, there is a danger higher output prices for goods made in China will feed through to producer and consumer prices around the world, which could ultimately lead to more pressure on central banks to raise interest rates sooner than anticipated.

Chinese GDP grew by just 4.9% in the last quarter, well below analysts’ forecasts and the weakest rate since the same quarter of 2020 as the economy faced power shortages, supply chain issues, virus outbreaks and a drop in property investment due to government restrictions after Evergrande’s debt crisis.

Observers are now worried fourth quarter growth could be even weaker as Chinese industry struggles to deal with soaring power prices.

However, as UBS chief economist Paul Donovan points out, there are a lot of country-specific factors involved such as flooding, which impacted power production, the government’s zero tolerance policy toward Covid-19 and the impact of higher energy prices ‘in an economy that is an inefficient energy consumer’.

Therefore, says Donovan, ‘there is no automatic global read-through from China’s position’, although luxury stocks including Burberry (BRBY) were marked down, as often happens when growth disappoints in the world’s second-biggest economy.

Of more concern for global markets is was the sharp spike in Chinese ‘factory gate’ or producer prices, which last month rose at their fastest pace in more than a quarter of century as manufacturers passed on soaring energy prices.

The producer price index rose 10.7% in September, its highest rate of annual growth since 1995, sharply ahead of forecasts and August’s 9.5% increase.

On top of strong demand driven by the economic recovery, energy prices have been driven higher as crude oil processing at refineries fell to its lowest level since May 2020 last month due to a shortage of feedstock and tougher inspections.

Ironically, government-mandated carbon emission cuts have increased the cost of producing ‘clean’ power which in turn has pushed up the price of dirty fuels.

Chinese coal prices hit a new all-time high this month, creating further headaches for manufacturers and policy makers.

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