China encountered its deepest deflationary threat since 2009 as consumer prices witnessed a severe decline in January, highlighting the persistent challenges for the world's second-largest economy in its struggle for recovery.<o:p></o:p>

The National Bureau of Statistics revealed that the Consumer Price Index (CPI) experienced a 0.8 per cent year-on-year drop, marking the most significant decline since September 2009, following a 0.3 per cent decrease in December. <o:p></o:p>

Amid a challenging economic landscape, the CPI rose by 0.3 per cent month-on-month.<o:p></o:p>

Analysts had anticipated a 0.5 per cent year-on-year fall and a 0.4 per cent month-on-month gain, underscoring the severity of the economic headwinds.<o:p></o:p>

The persistent deflationary pressure depicted in China's CPI data underscores the urgency for decisive and swift actions by policymakers to prevent the entrenchment of deflationary expectations among consumers. <o:p></o:p>

Despite the official target of around 5 per cent economic growth being met in 2023, the recovery has been lacklustre. <o:p></o:p>

A contraction in factory activity in January, coupled with challenges like a property downturn, local government debt risks, and weak global demand, adds to the complexity of China's economic revival. <o:p></o:p>

Analysts emphasise the need for proactive measures to counter deflationary risks.<o:p></o:p>

China has grappled with slowing prices since early last year, leading policymakers to implement interest rate cuts to stimulate growth. <o:p></o:p>

The growth target for 2023 was achieved at 5 per cent, but the resilience of the recovery has been questioned. <o:p></o:p>

A growth target of around 5 per cent is anticipated for the current year. <o:p></o:p>

In late January, China's central bank announced its most substantial cut to bank reserves in two years, signalling robust support for the fragile economy. <o:p></o:p>

However, analysts stress the necessity for additional measures to boost confidence and demand effectively.<o:p></o:p>

Core inflation, excluding volatile food and energy prices, saw a 0.4 per cent gain from a year earlier, down from December's 0.6 per cent. <o:p></o:p>

Despite last year's CPI rising by 0.2 per cent, missing the official target of around 3 per cent, inflation has fallen short of annual targets for 12 consecutive years. <o:p></o:p>

Citigroup economists expect a mild reflation in 2024, forecasting annual CPI inflation at 1.2 per cent year-on-year. <o:p></o:p>

The cyclical drivers for CPI could shift in 2024, contingent on the return of consumer confidence, with the strength of reflation hinging on these factors.<o:p></o:p>

In addition to consumer prices, the Producer Price Index (PPI) recorded a 2.5 per cent year-on-year decline in January, following a 2.7 per cent fall in the previous month. <o:p></o:p>

Factory-gate prices experienced a 0.2 per cent month-on-month decrease. <o:p></o:p>

Prolonged factory deflation poses a significant threat to the survival of smaller Chinese exporters who find themselves embroiled in relentless price wars amid shrinking business opportunities.<o:p></o:p>

(With inputs from Reuters)<o:p></o:p>

China encountered its deepest deflationary threat since 2009 as consumer prices witnessed a severe decline in January, highlighting the persistent challenges for the world's second-largest economy in its struggle for recovery.

China encountered its deepest deflationary threat since 2009 as consumer prices witnessed a severe decline in January, highlighting the persistent challenges for the world's second-largest economy in its struggle for recovery. The National Bureau of Statistics revealed that the Consumer Price Index (CPI) experienced a 0.8 per cent year-on-year drop, marking the most significant decline since September 2009, following a 0.3 per cent decrease in December. Amid a challenging economic landscape, the CPI rose by 0.3 per cent month-on-month. Analysts had anticipated a 0.5 per cent year-on-year fall and a 0.4 per cent month-on-month gain, underscoring the severity of the economic headwinds. The persistent deflationary pressure depicted in China's CPI data underscores the urgency for decisive and swift actions by policymakers to prevent the entrenchment of deflationary expectations among consumers. Despite the official target of around 5 per cent economic growth being met in 2023, the recovery has been lacklustre. A contraction in factory activity in January, coupled with challenges like a property downturn, local government debt risks, and weak global demand, adds to the complexity of China's economic revival. Analysts emphasise the need for proactive measures to counter deflationary risks. China has grappled with slowing prices since early last year, leading policymakers to implement interest rate cuts to stimulate growth. The growth target for 2023 was achieved at 5 per cent, but the resilience of the recovery has been questioned. A growth target of around 5 per cent is anticipated for the current year. In late January, China's central bank announced its most substantial cut to bank reserves in two years, signalling robust support for the fragile economy. However, analysts stress the necessity for additional measures to boost confidence and demand effectively. Core inflation, excluding volatile food and energy prices, saw a 0.4 per cent gain from a year earlier, down from December's 0.6 per cent. Despite last year's CPI rising by 0.2 per cent, missing the official target of around 3 per cent, inflation has fallen short of annual targets for 12 consecutive years. Citigroup economists expect a mild reflation in 2024, forecasting annual CPI inflation at 1.2 per cent year-on-year. The cyclical drivers for CPI could shift in 2024, contingent on the return of consumer confidence, with the strength of reflation hinging on these factors. In addition to consumer prices, the Producer Price Index (PPI) recorded a 2.5 per cent year-on-year decline in January, following a 2.7 per cent fall in the previous month. Factory-gate prices experienced a 0.2 per cent month-on-month decrease. Prolonged factory deflation poses a significant threat to the survival of smaller Chinese exporters who find themselves embroiled in relentless price wars amid shrinking business opportunities. (With inputs from Reuters)

China faces its biggest deflation threat since 2009 as consumer prices plummet

China's exporters, particularly smaller enterprises, find themselves at a crossroads as prolonged factory deflation takes a toll on profit margins. Fierce price wars and shrinking business opportunities, exacerbated by higher interest rates abroad and growing trade protectionism, have left many exporters grappling with difficult choices. <o:p></o:p>

Reuters cited Kris Lin, an owner of a lighting factory, who highlighted the dilemma, stating, "It was impossible for me to lose this order." The relentless price competition poses a threat not only to individual businesses but also to the broader economic landscape in China.<o:p></o:p>

Survival struggles for small exporters<o:p></o:p>

Smaller Chinese exporters, locked in relentless price wars, are facing an uphill battle for survival. The continuous fall in producer prices, persisting for 15 consecutive months, has severely impacted profit margins, risking industrial output and jobs. The economic challenges compound existing issues like a property crisis and a debt crunch. <o:p></o:p>

Raymond Yeung, Chief China Economist at ANZ, emphasised the urgency of addressing deflation as a higher policy priority than achieving expected growth targets. Yeung warned of a potential vicious cycle, where companies cut prices, leading to staff salary reductions and subsequently hampering consumer spending.<o:p></o:p>

Impact on industrial profits and economic growth<o:p></o:p>

China's industrial profits experienced a 2.3 per cent decline in the previous year, adding to the 4 per cent drop in 2022 due to the COVID-19 pandemic. Manufacturing activity has been contracting for four consecutive months, with export orders shrinking for ten months straight. <o:p></o:p>

The challenging economic landscape has led to a decline in profits, prompting the need for policymakers to consider alternative strategies to stimulate growth. Louis Kuijs, Asia-Pacific Chief Economist at S&amp;P Global, underscored the importance of balanced growth to alleviate downward pressure on prices and margins. <o:p></o:p>

Financial resources and the broken monetary policy link<o:p></o:p>

China's focus on channelling financial resources into the manufacturing sector, rather than consumers, has raised concerns about overcapacity and deflation, even in booming higher-end sectors. Smaller firms are hesitant to take on loans to finance new business, contributing to what economists view as a broken link in China's monetary policy. Investment by private companies dropped 0.4 per cent last year, while state investment rose 6.4 per cent, indicating a growing inefficiency in the monetary policy framework. The intensifying competition in various industries, described as a "rat race" by an executive in the automotive molds sector, further complicates the situation. (Reuters)<o:p></o:p>

The urgency to address deflation and preserve jobs<o:p></o:p>

China faced a deflationary scare in 2015, primarily in state-dominated primary industries like steel. However, the current scenario involves a surplus in the private sector, with electronics, chemicals, and machinery makers being particularly affected. <o:p></o:p>

The pressure to cut jobs is intense, and factory owners are grappling with difficult decisions. Miao Yujie, an e-commerce clothing exporter, noted the anxious calls from bank managers offering loans but highlighted the impracticality for smaller firms to borrow amid fierce competition.<o:p></o:p>

(With inputs from Reuters)<o:p></o:p>

China's exporters, particularly smaller enterprises, find themselves at a crossroads as prolonged factory deflation takes a toll on profit margins. Fierce price wars and shrinking business opportunities, exacerbated by higher interest rates abroad and growing trade protectionism, have left many exporters grappling with difficult choices.

China's exporters, particularly smaller enterprises, find themselves at a crossroads as prolonged factory deflation takes a toll on profit margins. Fierce price wars and shrinking business opportunities, exacerbated by higher interest rates abroad and growing trade protectionism, have left many exporters grappling with difficult choices. Reuters cited Kris Lin, an owner of a lighting factory, who highlighted the dilemma, stating, "It was impossible for me to lose this order." The relentless price competition poses a threat not only to individual businesses but also to the broader economic landscape in China. Survival struggles for small exporters Smaller Chinese exporters, locked in relentless price wars, are facing an uphill battle for survival. The continuous fall in producer prices, persisting for 15 consecutive months, has severely impacted profit margins, risking industrial output and jobs. The economic challenges compound existing issues like a property crisis and a debt crunch. Raymond Yeung, Chief China Economist at ANZ, emphasised the urgency of addressing deflation as a higher policy priority than achieving expected growth targets. Yeung warned of a potential vicious cycle, where companies cut prices, leading to staff salary reductions and subsequently hampering consumer spending. Impact on industrial profits and economic growth China's industrial profits experienced a 2.3 per cent decline in the previous year, adding to the 4 per cent drop in 2022 due to the COVID-19 pandemic. Manufacturing activity has been contracting for four consecutive months, with export orders shrinking for ten months straight. The challenging economic landscape has led to a decline in profits, prompting the need for policymakers to consider alternative strategies to stimulate growth. Louis Kuijs, Asia-Pacific Chief Economist at S&P Global, underscored the importance of balanced growth to alleviate downward pressure on prices and margins. Financial resources and the broken monetary policy link China's focus on channelling financial resources into the manufacturing sector, rather than consumers, has raised concerns about overcapacity and deflation, even in booming higher-end sectors. Smaller firms are hesitant to take on loans to finance new business, contributing to what economists view as a broken link in China's monetary policy. Investment by private companies dropped 0.4 per cent last year, while state investment rose 6.4 per cent, indicating a growing inefficiency in the monetary policy framework. The intensifying competition in various industries, described as a "rat race" by an executive in the automotive molds sector, further complicates the situation. (Reuters) The urgency to address deflation and preserve jobs China faced a deflationary scare in 2015, primarily in state-dominated primary industries like steel. However, the current scenario involves a surplus in the private sector, with electronics, chemicals, and machinery makers being particularly affected. The pressure to cut jobs is intense, and factory owners are grappling with difficult decisions. Miao Yujie, an e-commerce clothing exporter, noted the anxious calls from bank managers offering loans but highlighted the impracticality for smaller firms to borrow amid fierce competition. (With inputs from Reuters)

China's exporters on the brink as prolonged deflation threatens survival

As 2023 draws to a close, disinflation appears to be the norm, except in China, where deflation continues to defy forecasts as cost pressures continue to surprise. The difference with the start of the year is stark. Consider US consumer prices, which rose at an annual pace of 6.5% in January and 6.4% in February before falling to 3.1% in November.

Deflation in China impacting global disinflation efforts

deflation-in-china

Deflation In China, News on Deflation In China, stories on Deflation In China, articles on Deflation In China, Deflation In China stories at Wion, Deflation In China news, Deflation In China latest news

deflation in-china

China faces its biggest deflation threat since 2009 as consumer prices plummet

China's exporters on the brink as prolonged deflation threatens survival

Deflation in China impacting global disinflation efforts