China’s economy confronts deflationary threatーNHK WORLD-JAPAN NEWS
Prices of goods in China have been falling at an alarming rate and concerns are growing about deflation. You’ve got Fukushima from our business team is here with the details. So you go, what are the latest data telling us? Right. Well, the National Statistics uh bureau came out with the inflation figure for June on Wednesday. So let’s start with uh what the numbers mean for consumers. Now, the consumer price index managed to squeeze out a tiny gain for the first time in five months, but it was just a tenth of a percent higher than the same month last year. Now, that doesn’t really offset the fact that the prices of goods, including cars, have been falling as consumers are keeping a close eye on spending. Beef contributed to the slight overall uptick. Home appliances were also a factor as government encouraged people to replace older items to rev up spending. On the other hand, the prices of goods traded among companies fell sharply. The producer price index is down by 3.6% in June from a year ago. That was wider than in May. Why is China seeing signs of deflation when so many other countries are struggling with inflation? Well, one reason is furious price uh competition uh among businesses to cater to the budget conscious consumers. You know, the car industry is a good example. Now, officials largest uh China’s largest electric vehicle maker BYD launched a major discount campaign in May. Prices were slashed by as much as 34%. Now, that got other EV makers to follow suit. It’s not the first time China’s car makers have gone into price wars. It’s terrible for the bottom lines of dealers, and some have actually gone under. It’s become so intense that the government demanded car makers voluntarily refrain from excessive excessive discounts. I talked to an economist who keeps a close eye on China. Now, Tamay Yoshino at Eto Research Institute notes that the fierce competition is not just happening in the car industry, but you know across the economy and especially in the e-commerce websites. E-commerce platforms have a system that tracks the retail prices of competitors. So if they see products selling for lower, they pressure the suppliers operating on their platforms to sell for less than those products. That’s the case even if the competitor’s price is already at rock bottom. That leads some retailers to sell at prices lower than material costs. Practically any product in any sector is sold at a discount. Coffee, for example. I’ve heard you can get coffee with the wrapping and everything for just three. That’s just under 50ents. So, Yugos is behind all this pressure to make goods and services cheaper. Well, consumers are and what says consumers are becoming more fearful about their finances. It is said that about 70% of the assets of people living in cities are in real estate. Property prices have been falling for the past three or four years since the sector started slowing in the summer of 2021. Ever since, as people’s assets have diminished, households have been trying to spend less, there’s a pattern among consumers to look for coste effective goods and products at lower cost. Businesses try to cater to consumer needs, so they start offering goods for less and less. I believe this is why the race to the bottom has intensified in the Chinese economy. It looks like China’s economy could really be headed for deflation. Um, how’s the government dealing with this? Well, one thing it did recently was to order internet platforms not to pressure suppliers to cut prices. If they do, they could face hefty fines, but Tamay says uh the effect could be temporary. You know, the price wars could go on as long as consumers continue to hunt for the best bargains. So you go how do you think this you know situation will play out from here? Tamay says wages will be key. If the price war continues for a long time and company’s financial performance deteriorates they will try to cut labor costs that would lead to lower wages. If this goes on for an extended period the people making less will spend less. If consumers are spending less, businesses will have to bring prices down further, prices and wages will slip even more, creating a downward spiral. So, it seems China could fall into a long-term deflationary spiral just like Japan did in the 1990s. Right. Well, Tom says that’s a possibility although uh the evidence is still inconclusive. Uh she says if businesses can provide uh goods and services that people want regardless of price, the cycle could be broken and the economy could be safe uh from going down that deflationary mode.
Prices have been falling in China as consumers grow fearful about their finances, stoking concerns the economy could be headed for a deflationary spiral. #business #china #finance #economy
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