Prices in China are getting cheaper, President Xi warns
2 min readWhile the USA and Europe are doing everything they can to reduce inflation, prices in China continue to fall. Deflation seems to be becoming more entrenched.
This is also unexpected for the experts. In October prices were already 0.2 percent below those of the previous year, but now deflation seems to be really gaining momentum. In November of this year, prices even slipped down by 0.5 percent. China has not seen a crash like this for three years now. This is now worrying even China’s most powerful man.
President of China sees a critical phase
Xi Jinping this week described his economy’s recovery as being in a “critical phase.” He also warned of increasing negative factors in the areas of economics and politics.
Chinese consumers are apparently to blame for the falling prices. You currently lack trust. This is reflected in consumer prices, which only rose minimally in one month in the last six months. However, these have mostly remained the same, and things have been going downhill since October. This has an impact on producers.
Their prices have been falling for more than a year, and in November they even fell by 3 percent. China has been struggling with numerous problems since the pandemic. In addition to the ongoing real estate crisis, the country is struggling with increased youth unemployment. However, if deflation becomes more entrenched, this will have an even greater impact on employment.
Excess capacity goes to Europe at high discounts
Apparently Chinese consumers are saving more, which is depressing company sales and reducing jobs. The question now is whether we are seeing the beginning of a downward spiral. After all, China has been considered a global growth engine for many years. Dramatic changes in the economic environment would therefore also have an impact on the global economy.
Europe is already feeling the effects of excess capacity. Many Chinese companies rely on predatory pricing to get rid of their electric cars and products from the solar and wind power industries in Europe. As a result, this depresses the sales of domestic producers.
What’s next for interest rates in the USA?
In the West, meanwhile, people are looking excitedly to the USA, where the last Fed meeting is scheduled for Wednesday. Then it will become clear whether the optimistic forecasts regarding imminent interest rate cuts were justified or not. The further price development of numerous cryptocurrencies will also depend on this.
Bitcoin has recently had a surge. This was spurred on by the hope of falling interest rates and the approval of the first Bitcoin spot ETF by the SEC.
