In China, prices have been falling for too long
In China, a troubled real estate sector is slowing growth in the country. One symptom of that slowdown is deflation, which has led to a spiral of other economic issues.
“Marketplace Morning Report” host Sabri Ben-Achour spoke with “Marketplace” China correspondent Jennifer Pak about how China’s economy got to a state of deflation, and what the government is doing about it. The following is an editing transcript of their conversation.
Sabri Ben-Achour: So deflation, that is where overall prices are falling, which is so very different from what is happening here in the U.S. And one might be led to wonder, what is the problem with falling prices?
Jennifer Pak: Well, falling prices is good. But if it goes on for too long, it really trains consumers to expect prices to fall further, and then they delay their spending, which in turn means companies get less revenue, and then they might start laying off people. And then those unemployed people in turn, don’t spend as much. So the concern is it could turn into a vicious cycle.
Ben-Achour: So looking at the numbers in July, China’s consumer prices were down three tenths of a percent, producer prices were down four and four tenths percent. And prices at factory gates have been falling since last October. What is causing that?
Pak: Well, there’s just less buyers overall, less demand from the U.S. and Europe partly because of Russia’s war in Ukraine and U.S.-China tensions. There’s less demand here in China because Chinese consumers just don’t have much confidence in the economy. You know, they’ve gone through three years of endless lockdowns during the pandemic. A lot of people have burned through their savings. Unlike consumers in the U.S., they had no cash handouts here for Chinese consumers. Unemployment is high. Plus the property sector is down, which affects everything in China’s economy.
Ben-Achour: We know what this kind of slowdown looks like per the numbers. What’s it look like on the ground for regular people?
Pak: So if you go to tourist hotspots this summer, flights are full, restaurants are crowded, it’s busy. But when I talk to vendors there, and ask them, “How’s business?” Quite a number of them say tourists aren’t really spending as much as they used to before. Outside of tourism, businesses say they don’t have plans for the next three to five years. They just hope to survive.
Ben-Achour: How is China’s government responding to this?
Pak: Well, officials have announced a number of policies to help boost consumer spending and private investment but most of those policies lack concrete details. China’s government has also tried to boost the property sector. The Chinese central bank has lowered interest rates a few times to increase borrowing hopefully, but none of that has made a difference. Meantime, there are reports that economists and analysts have been warned by officials against talking about negative economic trends in the media like deflation, for example. So Chinese officials are keen to downplay any bad economic news.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
