China is under threat of deflation || چین کو افراط زر کا خطرہ -

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In July, China’s economy entered a deflationary spiral amid worries that new stimulus measures may be constrained by decreasing prices. China may perhaps be about to enter a lengthy stagnation similar to that experienced by Japan.

Pork pulled down

Since Japan did so in August 2021, China is now the first G20 nation to record a year-over-year decrease in consumer prices.
Falling prices are a sign that Beijing is having trouble generating demand. The possibility that China would experience prolonged deflation similar to Japan’s “lost decades” in the 1990s, when prices and wages stagnated for an entire generation, is a source of even greater concern.

This week brought more negative news for China’s real estate market as Country Garden, the largest privately owned developer in the nation, experienced issues with repayment. According to the Tianjin-based Beike Research Institute, current housing prices have decreased by an average of 14% from their peak in August 2021 across 100 Chinese cities.
Worried Chinese consumers are returning to tried-and-true habits by saving their money rather than using it for purchases or investments. Because of weak demand and a surplus of pigs on the market, the price of pork fell sharply in July, by 26% year over year. This was a major contributor to the decline in the CPI.

Due to a rise in the summer vacation market, the CPI actually grew by 0.2% month over month from June. Core inflation, which does not include the cost of food and gasoline, rose by 0.8% y/y in July. While household goods, food, and transportation costs decreased in July, the cost of services like recreation, healthcare, and education rose.
This shows that it could be premature to draw similarities to Japan.

How will Beijing respond

In a statement released earlier today, the NBS minimised the risk of deflation by characterising the drop in consumer prices in July as transient and attributed it to a high base of comparison the previous year.
The People’s Bank of China’s deputy governor, Li Guóqiáng, forecasted that consumer prices will fall in July before rising in the second half of the year on July 14. He asserted that the demand would gradually increase again, making the decline in July simply a “phase.”

Other steps Beijing has made to allay concerns about deflation include: Bloomberg was warned not to discuss the subject publicly by regulators and several Chinese-based analysts’ companies.
There is still a lot of doubt about Beijing’s ability to significantly boost consumer spending and when, even if the U.S. and other Western nations have been fighting to contain inflation.

Success is probably going to depend a lot on what local governments do to increase demand through other programmes, such consumption coupons and other incentives. Beijing may need to use the huge stimulus stick once more if this fails. However, for a number of reasons, including a weakening yuan and a high level of economic debt (according to the New York Times, China’s total debt is now more than that of the United States), the central bank of China is hesitant to inject more stimulus. Additionally, it’s unclear if businesses will utilise stimulus monies channelled through banks or
The International Monetary Fund stated in its most recent assessment of the state of the world economy, released in July, that China’s economy was “losing steam” as a result of persistent weakness in the real estate sector, rising youth unemployment, and weaker-than-expected consumption in the context of low consumer confidence.