From: lessgovt@gmail.com   
      
   China’s Economy Faces Yet Another Threat: Falling Prices   
   By Keith Bradsher, Aug. 9, 2023, NY Times   
      
   The U.S. 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 previous 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 tends 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.   
      
   The Chinese govt has pressured economists inside the country not to mention   
   the possibility of deflation, while publicly denying that deflation poses any   
   risk.   
      
   “Generally speaking, there is no deflation in Chinese society, and there   
   won’t be in the future,” Fu Linghui, a National Bureau of Statistics   
   official, declared at a news briefing on July 17.   
      
   But economists are concerned.   
      
   It has been nearly 8 months since China’s top leader, Xi Jinping, relaxed   
   stringent pandemic measures that had paralyzed many parts of the economy.   
   After exhibiting bursts of energy early this year, the Chinese economy, the   
   world’s second largest    
   after that of the United States, has started to slow. Economic policymakers   
   are under increasing pressure to step in to help revive growth, something they   
   have signaled a readiness to do but have not yet carried out in a meaningful   
   way.   
      
   “The Chinese economy is squarely facing the specter of deflation, increasing   
   the urgency of government measures to stimulate the economy and, perhaps more   
   importantly, steps to rebuild household and business confidence,” said Eswar   
   Prasad, an    
   economics prof at Cornell and former China division chief at the I.M.F.   
      
   The prospect of sustained deflation only adds to China’s difficult problems   
   when geopolitical tensions are driving the United States and other key   
   economic partners like Germany to seek alternatives to China as a primary   
   source of manufactured goods.   
      
   A weak appetite for Chinese goods from domestic and foreign buyers alike,   
   demonstrated by a steep slide in exports this summer, represents a challenge   
   for China, said Wang Dan, the chief economist at Hang Seng Bank China. Low   
   exports are “driven by    
   both slowing demand from the developed world and an effort to diversify supply   
   away from China,” she said.   
      
   Consumer prices were down 0.3% in July from a year earlier. They were pulled   
   down by declining food prices — particularly for pork, a staple of the   
   Chinese diet — and falling car prices, the result of a price war and heavy   
   discounting in the auto    
   industry.   
      
   Some measures of consumer prices, such as those for clothing, shoes and   
   particularly health care, still showed small increases.   
      
   But producer prices declined 4.4% last month from July 2022, as weak demand   
   forced factories and other businesses to cut prices.   
      
   Perhaps most worryingly, particularly in a country where 3/5 of household   
   assets are tied up in real estate, housing prices are falling.   
      
   Prices of existing homes in 100 cities across China have fallen an average of   
   14% from their peak in August 2021, according to the Beike Research Institute,   
   a Tianjin firm. Rents have fallen 5%.   
      
   Prices for new homes are much harder to assess. Official data shows smaller   
   price declines for new apartments, but local governments have put heavy   
   pressure on developers not to cut prices. That has prompted developers to   
   pursue strategies like offering    
   free parking spaces and other discounts, effectively pulling down the overall   
   price of the home in ways that may not be readily reflected in government data.   
      
   The standard remedy for deflation is for the government to pump up the money   
   supply, notably by encouraging banks to lend more. But not a lot of companies   
   or households have shown much interest lately in borrowing, with the exception   
   of state-owned    
   enterprises, which are under instructions from government agencies to continue   
   borrowing and investing even in projects with low returns.   
      
   China avoided broad deflation in early 2009, when prices fell during the   
   global financial crisis, and again in 2012, when it also faced weak foreign   
   and domestic demand. But rescuing the economy was easier then. Real estate   
   prices have soared over the    
   past decade, as China’s central bank has pumped out vast sums to keep the   
   economy growing briskly and prevent the country’s currency, the renminbi,   
   from becoming strong enough to undermine the export competitiveness of the   
   country’s factories.   
      
   Last week, Chinese officials called on local and provincial governments to   
   enact a series of measures to encourage consumers to spend. But the central   
   government has been reluctant to pay for more consumer spending.   
      
   That caution has prompted economists outside mainland China to question   
   whether the recent steps will make much of a difference.   
      
   “It’s like a high school principal exhorting his students to do better,   
   rather than a measure to support economic activity,” said Andrew Collier at   
   Orient Capital Research in Hong Kong.   
      
   Adam S. Posen, the president of the Peterson Institute for International   
   Economics in Washington, attributed China’s current economic weaknesses to   
   Mr. Xi’s extreme response to Covid. In an article last week in Foreign   
   Affairs, Mr. Posen called the    
   phenomenon “economic long Covid.” Consumer confidence suffered lasting   
   harm from municipal lockdowns, mass testing and the forced removal of very   
   large numbers of people to specially built quarantine camps.   
      
      
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