China’s falling prices are a more profound problem than U.S. inflation

[OIO]

So are you suggesting families who have spent their entire life's savings to buy apartments to take a hair cut on their investments?

Since it is an investment, no one can guarantee the return.

 

[Skull and Bones]

Since it is an investment, no one can guarantee the return.

Next thing that will follow is non-payment of bank loans, as the EMI is not justified by the current valuation of the property. I guess it was already happening few months back.

 

[CIA Mole]

Since it is an investment, no one can guarantee the return.

exactly

no one couldve imagined terror feudal mao 2.0 to come into power

 

[beijingwalker]

So are you suggesting families who have spent their entire life's savings to buy apartments to take a hair cut on their investments?

Or this decades long biggest public grievance could never get a chance to be solved. The vast majority of the population dream to have a reasonable housing price.

 

[Viet]

I think all these comparison on China with 1990s Japan and slipping into structural deflation is premature.

China is still a developing country with GDP per capita barely higher than the world's average. OTOH Japan back in the 1990s is already a fully developed country, with its nominal GDP per capita among the world's highest then, much higher than the US:

View attachment 945332

World Bank Open Data

Free and open access to global development data

data.worldbank.org

China's nominal to PPP ratio (basically the price level relative to the US) is around 0.6 in 2022:

View attachment 945333

World Bank Open Data

Free and open access to global development data

data.worldbank.org

OTOH Japan's current nominal to PPP ratio is around 1.9 at its peak in 1995:

View attachment 945334

World Bank Open Data

Free and open access to global development data

data.worldbank.org

After decades of deflation/currency depreciation, Japan's price level relative to the US has dropped from 1.9 in 1995 to about ~0.7-0.8 in recent years, on par with other developed countries like Germany and France. So deflation in Japan is more like 'normalization' of its price levels relative to the rest of the developed world.

OTOH, China's PPP ratio is around 0.6. How much 'cheaper' can it get?

In fact I still see China's inflation outpacing other developed countries in the medium term, as a shrinking labor supply pushes up wages and costs. Gone are the days when China has endless supply of cheap labor working in factories. Like the developed countries, it's natural that more of their youth wants to work in a cushy office job as the economy progresses.

The EIU also thinks that China will become pricier:

View attachment 945339

China will become less populous, more productive—and more pricey

And GDP parity with America is still decades away

www.economist.com

Nah not correct. Deflation has nothing to do how high or low GDP is. If consumers expect lower prices tomorrow then they will wait the purchase tomorrow.

If they believe the prices will sink further in a week then they postpone a week.

that is a grave problem. If many think prices will sink in the future then the economy will come to the standstill because the factories will stop production.

Deflation is poison. It’s hundreds times worse than inflation.

 

[OIO]

Next thing that will follow is non-payment of bank loans, as the EMI is not justified by the current valuation of the property. I guess it was already happening few months back.

There are quite a few, most of them are for investment, and there are also those who bought a house beyond their own financial resources.

So what?

What China needs are entrepreneurs, not capitalists, and what China needs are laborers, not rentiers.

 

[kuge]

The United States and China are the world’s two most important economic powers. But they face polar opposite economic problems.

The United States has struggled with rising consumer prices over the past 18 months, with inflation still considerably ahead of the Federal Reserve’s 2 percent target despite attempts to slow down spending and 3.2 percent year on year last month, according to data released Thursday.

China faces a different problem: Deflation. According to official statistics released Wednesday, consumer prices had fallen by 0.3 percent over the last year after being stagnant for months.

And while America has a startlingly tight labor market, with more job openings than out-of-work people, China is facing enormous unemployment problems. The unemployment rate for 16- to 24-year-olds hit a record 21 percent in June — though some experts believe it is actually even higher.

There is one significant similarity, though it doesn’t look good for Beijing. While China has a 5 percent official target for economic growth this year, that growth is year on year with 2022, a year when economic activity was severely limited by “zero covid” rules. Economists from Bloomberg News have said growth would look more like 3 percent under normal circumstances — not so far above the 2.5 percent that JPMorgan now predicts for the United States.

That slower rate would be well off-track for a country that was, pre-pandemic, a driver of global economic growth. And there are more worrying signs for China too, including declining international trade, spiraling government debt and domestic property investment.

On a global level, it is China that is the outlier rather than the United States. The inflation and job market woes seen in the United States are echoed across almost all major economies. Economists attribute this to government stimulus packages and structural unemployment during the pandemic, as well as increased spending after covid-19 subsided.

In the United States and elsewhere, this presents an immediate political problem. While President Biden has claimed that his “Bidenomics” is creating a “soft landing” by bringing down inflation without causing a spike in unemployment, polls show that ahead of the election many Americans are still feeling the pinch of higher prices and fear a recession.

The problems in China’s economy may also be a result of covid-19, but they are distinct — and perhaps more drastic. The country’s stringent response to the pandemic — the “zero covid” policy that implemented mass lockdowns, testing, quarantine and border control — may have saved far more lives than the less organized efforts in the United States and elsewhere, but it ended abruptly and chaotically, negating many of its successes.

It may have left a far worse economic hangover. Writing in Foreign Affairs earlier this month, U.S. economic policy expert Adam Posen argued that what we are seeing now represented the “end of China’s economic miracle,” linking the strict covid-19 rules to a growing economic anxiety that causes people to hoard their money, despite low-interest rates, leading to deflation.

Economists have also tracked a huge decrease in foreign direct investment in China, likely both a result of covid-19 restrictions and economic gloom in the country but also the trade war initiated by the Trump administration against Beijing.

How bad could things get? One common point of comparison is Japan, another once-rising Asian economic power that caused major anxiety in Washington and Europe. Booming in the 1970s and 1980s, its bubble burst in the 1990s and the country entered decades of economic stagnation and deflation that effectively made its citizens poorer and its national debt more burdensome.

But China of 2023 is not the Japan of 30 years ago. China has a population of 1.4 billion, more than 10 times the size of Japan even now. When adjusted for purchasing power, its economy has been bigger than the United States since 2015. Japan’s was never more than half the United States’.

Moreover, Japan is a functioning, if imperfect, democracy. China is an autocracy that has become only more closed off over recent years. Even getting economic data is becoming more difficult, with the word “deflation” taboo in official language and an anti-espionage law making officials cautious of speaking to outside experts, even privately.

“You’ve got an economic slowdown that would worry any country, coupled with a China that always likes to put on a brave face to the world and a leadership that is particularly image-conscious,” Andrew Collier, managing director of Orient Capital Research in Hong Kong, toldthe Financial Times. “Put those three factors together and it’s the recipe for a very non-transparent economy.”

At the same time, there are persistent fears about China’s foreign policy intentions — President Xi Jinping has hinted at major action against the self-governing island of Taiwan, risking a global war that could drag the United States and others in. Just this week, The Washington Post broke the story of how China had infiltrated Japan’s defense networks.

Japan’s economic fall to earth was a peaceful affair. In a New York Times column last month, economist Paul Krugman argued that the country had actually handled its key economic problem — a demographic shift from a young to an elderly society — relatively well. China, another aging society, faces a similar problem. It may not handle it anywhere near as well.

“So, no, China isn’t likely to be the next Japan, economically speaking,” Krugman wrote. “It’s probably going to be worse.”

For the rest of the world, that makes China’s economy one to watch closely. Any turmoil in the country could spark unexpected consequences elsewhere in the world, both economically and politically. As Posen writes, for the United States it could well be an opportunity to put this economic rivalry to bed. At the least, China’s dreams of economically eclipsing the United States may be forever delayed.

https://www.washingtonpost.com/world/2023/08/10/china-economy-united-states-inflation-unemployment/

 

[letsrock]

Chinese SOE’s are already caught in a debt trap, i.e. they are borrowing to pay interest on existing loans.76% of the 29 Trillion USD corporate debt is held by Chinese SOE’s.
Plus SOE’s are less capital efficient compared to POE’s and so generate much lower returns on investment.

https://www.spglobal.com/_assets/documents/ratings/research/global-debt-leverage-1.pdf

This financialized return on capital criteria may not be applicable to China at its current level of development.
Return on capital is likely to be low on the high speed rail, numerous parks or greening efforts, public transportation investment etc. But these are needed to make future chinese economy competitive. Without such infrastructure China cannot produce goods competitively. They are also needed for well being of people.

For example it is very hard to get inexpensive and hygenic cold salads or meats in many of the poorer countries - though they grow them in plenty. They just dont have a cold chain infrastructure. And this wont come from private industry so easily. you cannot compare everything to us. In us it is possible for private organizations to get angel investors or some financial route where people will invest for decades without a return. Amazon did not turn a profit for decades but investors could wait - you think that works anywhere else ?

 

[GiantPanda]

Nah not correct. Deflation has nothing to do how high or low GDP is. If consumers expect lower prices tomorrow then they will wait the purchase tomorrow.

If they believe the prices will sink further in a week then they postpone a week.

that is a grave problem. If many think prices will sink in the future then the economy will come to the standstill because the factories will stop production.

Deflation is poison. It’s hundreds times worse than inflation.

Inflation is historically FAR FAR FAR FAR worse than deflation which is actually a positive thing half the time because deflation can come from productivity gains as well as lack of demand.

No economy has ever collapsed from deflation but many have from inflation.

 

[Menthol]

Deflation means the value of money is increasing compared with the value of goods.

To be honest, as a consumer this is good news.

But why do so many articles say that deflation is bad?

Because it's bad for the bank.

But of course, deflation in the long run is as bad as high inflation in the long run.

 

[OIO]

Printing money is very simple, but it is not good for industrial upgrading, and it will leave a pile of debts.

 

[Laozi]

What China needs are entrepreneurs, not capitalists, and what China needs are laborers, not rentiers

Why hardly any billionaire settles in China and most of Chinese are migrating

These entrepreneurs will migrate to U.S. and Australia to enjoy the fruit of capitalism, once they become successful.

 

[OIO]

Why hardly any billionaire settles in China and most of Chinese are migrating

These entrepreneurs will migrate to U.S. and Australia to enjoy the fruit of capitalism, once they become successful.

Capitalists think their capital is safer in the west, but the war in Ukraine tells everyone it's not.

China's control over the financial sector is tighter than before. So moving money to the west will be harder.

Generally speaking, this problem will always exist until the West completely declines, but it will not affect the overall situation.

 

[Laozi]

Capitalists think their capital is safer in the west, but the war in Ukraine tells everyone it's not.

China's control over the financial sector is tighter than before. So moving money to the west will be harder.

Generally speaking, this problem will always exist until the West completely declines, but it will not affect the overall situation.

All your wealth will flow out of China until people who have left China start coming back.

Switzerland is thieving because of stashed loot from India and Pakistan. Your diaspora is helping making U.S and Australia richer.

 

[OIO]

All your wealth will flow out of China until people who have left China start coming back.

Switzerland is thieving because of stashed loot from India and Pakistan. Your diaspora is helping making U.S and Australia richer.

You're an idiot from the word 'all'.