Four flash sales in a day! China, the world’s second largest economy, hit with deflation – why economists are worried here

Deflation occurs when the prices of goods and services in the board are reduced.

Rising prices or inflation is a common headache for economies around the world. But what about the fall in prices? Believe it or not, a constant fall in prices, commonly known as deflation, is just a major concern for governments, as inflation. And, the issue is that the world’s second largest economy, China, is struggling with!
Recent data indicates that China’s Consumer Price Index in February declined 0.7% year-on-year, decreased estimates, while the manufacturer’s prices decreased by 2.2%, the trend continues to below since September 2022.
China’s extended industrial capacity has contributed to export development, yet it is simultaneously causing domestic deflation pressure.
According to a report by Reuters, the February Consumer Price Index recorded a steady decline in 13 months, with constant manufacturer price deflation. This recession shows seasonal demand and consumer hesitation affected by employment and income uncertainties.
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The report stated that after the recent pledge of Beijing to increase consumption amid American trade tensions, analysts continued the pressure of deflation in China’s economy.

What is deflation and why are economists worried?

Deflation occurs when the prices of goods and services in the board are reduced. During such a period, the currency value increases over time. Over many years, economists have expressed concern about deflation.
While deflation seems beneficial for consumers, who can buy more with their income over time, the effects of falling prices are not universally beneficial. Economists are worried about how different economic sectors are affected at price.
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China’s deep deflation concerns may continue beyond temporary seasonal variations, unless the government action addresses the surplus production capacity affecting the price level.
The ongoing price reduction has led to a negative impact on commercial income, employee compensation and government revenue. A report by Bloomberg states that continuous deflation may potentially reduce business investment and reduce consumer expenses.
Financial institutions such as Citigroup Inc. and Nomura Holdings Inc. expressed concern that consumer values ​​could live near the negative sector throughout the year if domestic production is higher than consumer demand.
Bloomberg’s report stated that People’s Bank of China is currently focusing on maintaining yuan stability rather than applying monetary stimulation, addressing deflation will depend on the success of policy makers in management of additional production capacity.
As the citizap has been noted by economists, including Xinyu Ji, the reconstruction of consumer confidence may require several months and broadly the property depends on market stabilization, the approach to China’s supply-side reforms will be important to address the factory-level-tricked reforms.

What is the cause of deflation?

China’s growing youth unemployed, at 15.7%, are affecting consumer expenses. With the uncertainties of employment and income, Chinese shopkeepers are rapidly conserving retail vendors, even industrial production increases despite weak domestic expenses.
Financial experts indicate that such exemption growth of businesses is contributing to deflation trends, which can affect economic growth as these shops gain popularity on traditional retail vendors, similar to Japan’s experience in the 1990s.
Lynn Song, the chief Greater China Economist of the main Greater China Economist was told by Reuters, “The comprehensive change towards the procurement of higher value will lead to a role in deflation pressure.”
“The possibility of such intensive value competition also adds some pressure on the more traditional retail model,” the song said.
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Four flash sales in China a day

In his report, Reuters quoted an interesting example as a symptom of China’s deflation.
At the expander Vankelai establishment in Beijing, Manager Leo Luu operates sales through a microphone, provides rapid sufficient discounts during flash sales as long as he successfully does not sell items including a cotton jacket and a woman’s underafts.
Referring to China’s deflationary economic conditions, Liu acquired a buyer for a jacket in 20 yuan, a fraction of its original 239 yuan ($ 33) value tag. 39-Auan Undrsirt had to go away because no customer was ready to buy it!
Store, which offers clothes, snacks and everyday household items near the financial district of Beijing, conducts these sales four times daily!
Wide value cuts have emerged in areas, from restaurants to automotive manufacturer, from offering 3-Yuan breakfast deals, one of its vehicle prices has been reduced to $ 10,000.
Local coffee chain Lakkin has surpassed Starbucks as a market leader by offering more affordable options.