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Chinese consumer prices suffer quickest drop in 14 years

18 Comments
By Oliver HOTHAM

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Multiple analyst sources has given voice recently to substantial deflationary pressures going on right now on the Mainland.

Consumer and producer prices falling like a rock, at the same time authorities are curbing almost all short selling, and directing all state funds to make huge Chinese ETF purchases? And their securities regulator promising to prevent any future abnormal (over 1.5) market fluctuations?

One analyst I read equals the recent Mainland bad news to the bottom of their barrels starting to finally give out, with the economy leaking all over the place . . . while they are using mops and buckets to clean up the mess when instead they should be taking to their canoes (without paddles, of course).

3 ( +3 / -0 )

Consumer prices "suffer" a drop?

The pro-inflation, anti-worker propaganda just never stops, does it?

This line is particularly odious:

"The primary drag on inflation continued to be food prices, which fell by 5.9 percent year-on-year

Lower food prices should be something every society strives with all its might to bring about. Only the elites could complain when it becomes easier for working people to keep food on their plates.

4 ( +6 / -2 )

Chinese asset markets continue to struggle, especially real estate. Consumer and business confidence naturally not on the upswing. None of this is good for global stability, especially regarding Taiwan.

-2 ( +2 / -4 )

This is great news for consumers no?

2 ( +2 / -0 )

Consumer prices "suffer" a drop?

The pro-inflation, anti-worker propaganda just never stops, does it?

It is not that simple. Economists in general have a preference for low but predictable inflation over time as this gives business confidence to invest and grow. When deflation takes hold yes prices fall but that reduces business revenues. Either wages are cut or workers are laid off. When deflationary expectations prevail, consumers put off purchases thinking prices will be lower in the future. But they may or may not have a job in the future if people stop buying.

And even as prices, incomes and business revenues fall, there is one thing that does not, outstanding loan balances. If a deflation becomes entrenched a point is reached where businesses and consumers/home owners are making enough money to make their required loan payments. When that point is reached you face mass bankruptcy, mass unemployment and human misery rivaled only by war. Nobody in economics, my profession, really knows where the bottom is in a fully developed deflationary spiral and nobody wants to find out either.

Do you see now why economists are loathe to allow deflation to develop? It's not all a grand plot to harm workers. Workers suffer the most when deflation takes hold.

3 ( +4 / -1 )

Lower food prices should be something every society strives with all its might to bring about. 

Tell that to the farmer. A hallmark of early 20th Century depressions was deflation that reduced the value of farmland so much that farmers went out of business in large numbers and food production suffered, leading to famine. This is real life.

5 ( +5 / -0 )

An interesting statistic is that for 2023 Mexico surpassed China as the number one exporter to the US. US purchases from Mexico rose some 3% year over year while US imports from China fell 20% over the same time.

6 ( +6 / -0 )

@ Desert Tortoise: Good analysis, times 3.

2 ( +2 / -0 )

Oh the poor suffering Chinese. We in Japan, on the other hand, would be happy to have such problems. The LDP and Kishida seem to know how to increas prices especially food prices.

-2 ( +3 / -5 )

An interesting statistic is that for 2023 Mexico surpassed China as the number one exporter to the US. US purchases from Mexico rose some 3% year over year while US imports from China fell 20% over the same time.

The new China is Vietnam and Mexico. Have you and the Mrs been back recently? China is changing fast.

-1 ( +0 / -1 )

Chinese asset markets continue to struggle, especially real estate. Consumer and business confidence naturally not on the upswing.

No. Xi knows what he’s doing. He’s protecting the middle class. It’s the second and third home or condo buyers / investors that are “struggling.” Xi puts the people ahead of investors.

There are two Evergrandes. I don't mean there are two different Evergrandes but two operative versions of Evergrande.

One in China, the bulk of their operations there.

The other is in Hong Kong and globally finance themselves to keep giving returns while operating in China. This is the Evergrande that commentators here know.

The first version of Evergrande is on the Mainland. It owns many properties, land and unfinished and finished homes.

The second version of Evergrande is the paper version of Evergrande. That has borrowed on bonds and whose shares are trading in HK.

The second version of Evergrande is a disaster and whose bubble Xi is popping. These involve the speculators and Xi is practicing absolutely wonderful discipline, which was absent in 2008 in the Global Financial Crisis. Here there is no secured debt. It’s all paper.

The main people affected are foreign agencies and bondholders and foreign shareholders and the 6% of the HK elite. Let the foreigners take the hit.

The second version of Evergrande has debt close to 1.75 Trillion RMB ($250 Billion) and secured assets are non existent. Three cents on the dollar.

The first version of Evergrande is fine. The debt is manageable and there is enough land to ensure that the Chinese on the mainland are not affected too much. If they don't get homes the Government will take over. No Issues.

No mainland Chinese beyond 35,600 Investors are affected. China will guarantee the first version doesn't collapse as it affects Chinese Banks, Chinese Bond holders, Chinese Home Buyers. This is a very manageable debt.

Around 1245 Billion RMB against 900 Billion of Properties at Distress Values (40% Lower)

That's around 345 Billion RMB or $50 Billion deficit.

China will have no problem taking over at the appropriate time. They are waiting to see the secured land and properties go up in value.

-2 ( +2 / -4 )

Viva la Mexico!

1 ( +2 / -1 )

consumers put off purchases thinking prices will be lower in the future

This propaganda again. It's not true. It's certainly not true for essentials like food, and it's not true at the "deflation" rates we have seen in the real world (on the order of 0.1-0.5%). Absolutely nobody is putting off buying a liter of milk because it might cost 1 yen less a year from now. And even goods with huge drops in prices, such as electronics, don't "suffer" (as the article puts it): putting off the purchase ignores the utility of having it sooner and for a longer period. People buy phones and computers all the time, and these are things that drop in price by more than any daily essential purchase like food.

When prices drop, people buy more and better goods. Ask any shopowner and go visit any department store running a sale. The light deflation (fractions of a percent) that we saw in the decade or so leading up to 2012 was fantastic for an entire generation of young people who could buy homes and save money and get ahead. It kept the working poor and older workers, who have no leverage to negotiate for raises and cannot afford the risk that comes with trying to invest, from falling even further as they are doing in many other countries. They can't take out loans at low rates knowing that they'll be able to pay them off easily in the future with increased incomes. They're stuck watching their savings get destroyed by a government that tells them it's for society's good.

If you're an economist, you surely know about the Cantillon effect: the central bank debases the money, and before prices rise, the rich and connected get to take advantage of the cheap new money by borrowing, while the workers and the unconnected don't get access and are stuck paying more, working harder, and hoping that their wages rise.

One of the things I've always appreciated about Japan is that the top 10-20% don't dominate a giant underclass and that there's a much bigger middle class here. Affordable housing even in the biggest cities; reasonable prices when eating out. And we're going to see those things disappear as the LDP finally gets the inflation they've been propagandizing the increasingly-poorer public into supporting. I won't be bamboozled.

0 ( +1 / -1 )

Personally, I can't wait for prices to drop in Japan so that the companies that have been raking in the dough with higher profits these past few years while decrying "hard times" and an inability to give workers salary rises can then lower wages to ensure profits do not drop. It is only up for companies!

-2 ( +1 / -3 )

Whew poor China.

We're lucky prices are rising here on Japan.

-5 ( +0 / -5 )

This propaganda again. It's not true. It's certainly not true for essentials like food, and it's not true at the "deflation" rates we have seen in the real world (on the order of 0.1-0.5%). Absolutely nobody is putting off buying a liter of milk because it might cost 1 yen less a year from now. And even goods with huge drops in prices, such as electronics, don't "suffer" (as the article puts it): putting off the purchase ignores the utility of having it sooner and for a longer period. People buy phones and computers all the time, and these are things that drop in price by more than any daily essential purchase like food.

Except actual economic data from Japan shows that as deflation took hold aggregate demand fell dramatically along with asset prices. Banks withheld lending fearing that as asset prices continued to fall the value of collateral offered to secure loans was falling, making lending overly risky. This caused investment to fall. Lack of consumer demand made it essentially impossible for the BOJ to successfully apply stimulus and interest rates fell to zero. This is real life, what actually has happened with deflation in Japan, not your wishful thinking.

0 ( +0 / -0 )

If you're an economist, you surely know about the Cantillon effect: the central bank debases the money, and before prices rise, the rich and connected get to take advantage of the cheap new money by borrowing, while the workers and the unconnected don't get access and are stuck paying more, working harder, and hoping that their wages rise.

In the case of Japan in the 1990s and the US after the 2008 crash, banks did not lend. As asset values fell banks worried that the value of collateral offered to secure loans would fall and the banks would be unable to recover their loan principal. Getting banks to lend was a struggle for both the BOJ and for a time for the Fed after the 2008 crash. Real life, not your theories. Between 2009 and 2010 something on the order of $16-$20 Trillion vanished from the US money supply, a sum that represents lost asset value as all those mortgage backed securities were seen to be worthless and the institutions that made the loans went bankrupt.

0 ( +0 / -0 )

essentially impossible for the BOJ to successfully apply stimulus and interest rates fell to zero. This is real life,

BOJ stimulus is a lot further from real life than what is right in front of us at the supermarket: working people paying higher prices and getting less for their money month in and month out for something like three years in a row. The bottom 80% is being destroyed by inflation. If the BOJ were competent they would balance the money printing so that the value of the yen is maintained, but instead they deceive the public into thinking that the steady loss of the value of their wages is good for them and good for society. It's only good for the debt-ridden government and the connected rich.

0 ( +0 / -0 )

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