BEIJING, Aug 9 — Chinese policy-makers face mounting pressure to support economic growth after an unexpectedly large drop in exports last month and the steepest decline in producer prices in almost six years.

China’s producer-price index fell 5.4 per cent year on year in July, according to National Bureau of Statistics data released today. The decline -- the biggest since October 2009 - - came on the heels of trade data yesterday that showed exports last month shrank 8.3 per cent from a year earlier, compared with an estimated decline of 1.5 per cent.

The data indicate weak demand for Chinese factory products both at home and abroad and suggest that interest-rate cuts and efforts to stabilize local government finances have yet to spark a recovery. The People’s Bank of China has lowered interest rates four times since November to support an economy expected to grow this year at the slowest pace since 1990.

“The goal this year is to sustain growth, so policies will continue to stimulate demand,” said Zhou Hao, an economist at Commerzbank AG in Singapore.

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Maintaining an economic expansion of about 7 per cent poses a challenge because the financial sector can’t be expected to surge in the second half like it did during the recent stock market boom, Liu Ligang and Louis Lam, analysts at Australia & New Zealand Banking Group Ltd, wrote in a note Sunday. Chinese stocks have lost almost US$4 trillion in market value since their mid-June peak.

“Monetary policy will need to become more supportive,” the analysts said. They forecast another interest rate reduction this quarter, as well as a cut of 50 basis points to the portion of deposits that lenders must hold in reserve.

Strong yuan

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Also weighing on growth prospects is a yuan that has maintained its strength against the US dollar even as other major currencies depreciate. China’s exports to the European Union fell 2.5 per cent year on year in the first seven months of 2015, while shipments to Japan dropped 10.5 per cent. One bright spot was exports to the US, which expanded 9.3 per cent.

The slump in exports “compounds downward pressure on China’s economy and threatens to bring exchange-rate depreciation onto the table as a tool to restore competitiveness,” Tom Orlik, chief Asia economist at Bloomberg Intelligence, wrote in a research note Saturday.

The PBOC has held a vice-like grip on the yuan, allowing it little movement in the onshore market. The currency’s closing levels in Shanghai this week matched the tightest range recorded since a fixed exchange rate ended a decade ago.

Factory prices

The central bank said in its quarterly monetary policy report Friday that it would let the market play a bigger role in setting exchange rates while keeping them “at a reasonable equilibrium level.”

The government is meanwhile stepping up efforts to spur growth. China plans to issue at least 1 trillion yuan (US$161 billion) in bonds to fund construction projects, people familiar with the matter said August 4. Authorities are also expanding policy banks’ lending capacity.

Factory-gate prices of excavated oil and natural gas dropped 34.6 per cent in July, while those of ferrous metal fell 20.1 per cent, according to NBS. Non-food consumer prices rose 1.1 per cent year on year, down from 1.2 per cent in June.

Overall, the consumer-price index increased 1.6 per cent from the year-earlier period, as a surge in pork prices offset sluggish growth in the cost of non-food items. The price of the meat -- a major staple on Chinese dining tables and an important part of the CPI basket -- leaped 16.7 per cent in July from a year earlier, according to the statement.

The pork-led pickup won’t by itself cause the PBOC to change tactics. “Monetary policies will not change with the price of individual commodities, but will observe the general price trends,” the central bank said in its policy report. — Bloomberg