It doesn’t matter how much you talk markets up. It’s like pushing on a string. Despite Chinese media hyping Xi Jinping’s personal involvement in a potential turnaround plan, Chinese consumers and businesses aren’t keen on the economy’s prospects. The Wall Street Journal’s Jason Douglas reports on deflation’s tightening grip in China, writing:
Deflation is becoming more entrenched in China, with consumer prices falling in January at their steepest pace in more than 14 years—a stark symptom of deepening economic malaise that spells trouble for the global economy.
The latest data suggest China faces a growing risk of slipping into a longer-term spell of falling prices that becomes harder to reverse the longer it lasts.
That presents a special challenge for the rest of the world. While cheaper goods from China might help ease inflation elsewhere, it means the global economy can also expect a flood of cut-price imports as Chinese factories search out buyers overseas for products they can’t sell at home. That risks squeezing other countries’ domestic manufacturing, stoking already acute tensions over trade between China and the U.S.-led West.
China’s sinking prices add to a litany of economic challenges in the country this year. Growth is projected to slow from last year’s underwhelming pace. A drawn-out real-estate crunch is throttling consumer spending, with China Evergrande Group—the poster child for the sector’s woes—ordered into liquidation by a Hong Kong court. Exports are struggling and foreign investors are fleeing. Beijing on Wednesday replaced the country’s top securities regulator after an epic stock-market rout.
The new consumer-prices data, along with a run of other weak economic signals, “portend a treacherous period ahead for the Chinese economy,” said Eswar Prasad, professor of trade policy and economics at Cornell University and a former head of the International Monetary Fund’s China division.
“China’s deflation could also impinge on the world economy if it means that China, rather than serving as an engine of global growth, counts on demand from the rest of the world to revive its economy,” he said.
Action Line: Some deflation can be good for savers, who gain purchasing power as prices decline, but too much deflation can be dangerous, like too much inflation. Stable prices are Your Survival Guy’s preference. The price for Your Survival Guy’s Survive & Thrive letter is always stable—free. Click here to subscribe.