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China’s Economy Faces Yet Another Threat: Falling Prices

A deepening slowdown in the world’s second-biggest economy has now raised fears of deflation, which could be crippling for heavily indebted China.
A construction site of a residential property development in Nanchang, China, in May.Credit...Qilai Shen for The New York Times

A construction site of a residential property development in Nanchang, China, in May.Credit...Qilai Shen for The New York Times

The United States has spent much of the past 18 months struggling to control inflation. China is experiencing the opposite problem: People and businesses are not spending, pushing the economy to the verge of a pernicious condition called deflation.

Consumer prices in China, after barely rising for the past several months, fell in July for the first time in more than two years, the country’s National Bureau of Statistics announced on Wednesday. For 10 straight months, the wholesale prices generally paid by businesses to factories and other producers have been down from a year earlier. Real estate prices are tumbling.

Those patterns have amplified concerns about deflation, a potentially crippling pattern of broadly falling prices that tend to also depress the net worth of households — as it did in Japan for years — and make it very hard for borrowers to repay their loans.

Deflation is particularly serious in a country with very high debt, like China. Overall debt is now larger in China, compared with national economic output, than in the United States.

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Author: Editors Desk

Source: N.Y Times

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