2023-08-09 04:35:25
China
Prices in China are falling.
(Foto: Bloomberg)
Beijing The greengrocer in the small market in Beijing’s Oststadt district quickly types on her calculator: five tomatoes, two cucumbers, a red onion and a garlic bulb. “Exactly seven Kuai,” she says, the equivalent of around 88 euro cents. While consumers in many other countries are suffering from rising prices, prices in the People’s Republic are falling.
China slipped into deflation in July. Consumer prices fell 0.3 percent year-on-year. This was announced by the National Bureau of Statistics on Wednesday. The reasons for the decline are the reluctance to buy among Chinese households and the ongoing problems on the real estate market.
Producer prices also developed negatively, falling by 4.4 percent. For the first time since November 2020, both consumer and producer prices fell. Many economists believe that negative price spirals are more dangerous than inflation because consumers postpone purchasing decisions in anticipation of falling prices and companies hold back on investments. That could further weaken the already bumpy recovery.
The cautious attitude of companies and households is already dampening the post-pandemic upswing in the world’s second largest economy. China’s economy grew just 0.8 percent quarter-on-quarter in the second quarter. The economic data published so far for July point to little improvement. On a dollar basis, exports collapsed by 14.5 percent year-on-year. The crisis in the important real estate sector is also continuing.
Despite all the problems, the “talk of deflation in China is completely absurd,” says Robert Carnell, chief economist for Asia-Pacific at Dutch bank ING. Wang Tao, China chief economist at the Swiss bank UBS, also assumes that consumer prices will rise again at the end of the third quarter, also because consumption is slowly but steadily recovering.
Warnings about Japanese conditions exaggerated
Carnell thinks warnings about Japanese conditions in China are exaggerated. The situation in today’s China and in Japan in the 1990s is “very different,” he writes in a recent analysis. Because unlike Japan, which tried to cushion the bursting of the real estate and stock bubble with ever new debt-financed economic stimulus packages, China’s government is currently exercising restraint. “Despite all the stimulus speculation that fills the newspapers every week, there is nothing wrong with China sticking to its current course,” he stresses.
The economist currently sees neither a stock nor a real estate bubble in China. The development on the stock markets in the past months and years has even been rather average. While house prices have been exaggerated in places, this is now being followed by a period of slower growth or even price declines. Overall, this is “neither particularly worrying nor particularly undesirable”.
Carnell considers the politically desired correction on the real estate market to be “reasonable”, even if this means that the entire economy is growing more slowly, in line with China’s level of development. Growth rates in the real estate sector like before the Covid crisis, on the other hand, “could have ended in catastrophe. Maybe in a disaster like Japan,” Carnell clarifies.
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