China’s economy is going exactly opposite to where the world economy is going. Inflation is increasing in all major economies, but in China, prices are falling. Demand is decreasing in the country. China’s economy as a whole is plagued by housing and debt crises.
Commodity prices in China fell throughout 2023. It was thought that the country would be able to come out of that trend in 2024. But in reality that is not happening. According to the report of Business Insider, the price of goods in the country has decreased in the first two months of this year. In the month of January, prices in the country decreased by 0.8 percent. With this, the prices of goods and services have decreased in the country for four consecutive months. It was also the highest rate of depreciation in the last 15 months.
Many economists believe that there is some seasonal reason for this decline in prices. Devaluation affects people’s household income, corporate income and government taxes. According to the Institute of International Finance, Beijing will have to burn a lot of wood to turn around.
A few more facts make the point clearer, namely that China’s CPI, or consumer price inflation rate excluding food and energy, has been below 1 percent for the past 22 months. The country’s GDP deflator in 2023 was minus 0.5 percent; That is, the range of the country’s price reduction trend is very large.
Overcapacity in China’s industrial sector and a slowdown in the housing sector are the main reasons, IIF economists wrote in the note. They also said that the reason for the decrease in the price of goods more than the price of services is the overcapacity of the industry.
Apart from this, the ongoing crisis in China’s housing sector has reduced the prices of household goods and houses. Home prices fell 6.5 percent overall last year. The IIF reckons that prices of housewares, furniture and home improvement items have fallen due to a slowdown in home sales.
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Economists at the IIF said further deflationary conditions in the market would see consumers and investors cut back on spending. Devaluation will reduce GDP at current market prices and increase the debt-GDP ratio, thereby increasing the debt burden. On the one hand, asset prices are falling and on the other hand, debt is increasing over assets—thus reducing investment and consumption.
China’s economic growth did not slow last year according to official statistics; The country’s growth in 2023 is shown to be 5.2 percent. In the previous year i.e. 2022 also there was a growth of more than 5 percent. But the housing sector, which contributes 30 percent of the country’s GDP, is in dire straits. Along with the drop in sales of flats, prices have also come down. This has reduced the income of the owners, the workers are also earning less than the previous year. Due to these reasons, the world’s second largest economy is showing signs of contraction. Unemployment is also increasing.
