So, the New York Times has a headline:
China Deflation Fears Raised By Falling Prices For Food and Cars
No. China’s growth is fine, and some products dropping in price is also fine. Car prices are dropping fast because China has a competitive market for car production: they have hundreds of car companies. That is driving tech improvements and price competition. This is a good thing, it is not based on “no one has enough money to spend so everyone has to drop prices” which is what caused the Great Depression (the deflationary episode that makes everyone quake.)
I think that China is making a mistake with car production, because of climate change, but it’s not even slightly an indication of the possibility of the bad type of deflation.
As for food, China’s importing more and is coming out of a period where they have multiple huge disease outbreaks and culls for both pork (the primary meat in China) and chicken (the second most common.)
Lower food prices are a good thing as long as wages are increasing, which they are.
The constant drum-beats of doom about the Chinese economy are propaganda driven insanity. The Chinese economy is still growing faster and is overall stronger than any Western economy.
If you want a summary of what the Chinese are doing (deliberately deflating housing prices and switching investment into manufacturing, among other things), I wrote a long summary article last year on the Chinese economy’s transition last year. Read it, because you won’t find this out from any Western mainstream media source, except possibly the Financial Times (and even then, not put together properly.)
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Purple Library Guy
I wish Canada would deliberately deflate housing prices.
Oakchair
If we believed western media reports then China’s economy collapsed in 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023, and will collapses this year and again in 2025.
Russia was on the verge of being defeated by NATO, I mean Ukraine in 2021, and 2022 and Putin was going to be ousted in 2020, 2021, and 2022.
The Vaccines were going to end the pandemic in 2021. They were declared safe based on a single 6 month study done by Pfizer which showed the vaccine group had a 24% and 65% higher mortality and severe adverse event rate respectively.
Israel bombing hospitals, starving millions of people and its government openly admitting their goal is to ethically cleanse Gaza is defense and anyone opposing the slaughter of Palestinians is an anti-Semite (never mind that Palestinians are semites).
Generations from now the book “1984” and it’s lesser known counterpart “A brave new world” will be found in the documentary section of your local library.
Jan Wiklund
It is not only because of climate change car production and use is a bad idea. It is also economically disastrous. When there is a lot of car traffic, cities have to be rebuilt to accommodate it, so the distances grow. And that is expensive. See for example https://www.newyorkfed.org/research/staff_reports/sr440.html and https://www.strongtowns.org/journal/2017/1/9/the-real-reason-your-city-has-no-money.
Distances cost.
The Chinese are happy to still have dense cities with short distances. I hope their car production is a passing fad. New hegemonies use to use other ideas than the old one, so perhaps the Chinese will also.
different clue
The Western Chinaconomic coverage described in this posting appears to be what the kids today call ‘cope’.
bruce wilder
Deflation can get very nasty indeed, especially in an economy where borrowing short to lend long — what fractional-reserve banking does — is a key driver of investment spending. The U.S. financial crisis of 2007-8 was triggered by a few months of deflation following a global commodities bubble blown up by Bernanke flooding the world with dollar liquidity. It is not my impression that China’s banking and financial system works like that. Deflating housing will be especially painful for people who saved huge proportions of their financial income for many years and secured it by buying housing, which now must decrease in resale value substantially. It is a testament to China’s political resilience that it can impose and sustain that pain when it serves a purpose relevant to the general welfare.
I see a lot of hand-wringing in the West, too, over China’s demographic deficit, but little recognition of how close China is to exceeding the ecological and production limits. There are fundamental reasons for those recurring instances of bird flus and swine fevers and air pollution and water shortages can be acute. China’s rapid industrialization came too late to draw a sufficient proportion of population off the farm to extend a general prosperity to anything like the “whole” population and labor productivity continues to rise with “AI” and the automation of everything. Inequality in education as well as wealth afflicts China to an extent seldom acknowledged: the best schools are superb and intensely competitive among elites while vast areas of the country struggle still to get everyone through the equivalent of high school. I don’t get the idea, though, that China’s elite has gone full parasite-and-predator like the U.S. elite classes have. Not yet.
bruce wilder
This may well be obvious, but it felt like insight to me.
When economists talk and think about “inflation”, they think of money changing value relative to goods. When ordinary people talk about “inflation”, they are thinking about incomes relative to expenses. In ordinary language, “inflation” is experienced as a threat to living standards.
In the West, most people are experiencing stagnant or declining “real” incomes as overall income distribution shifts ever more sharply toward predatory finance and the very wealthy. “Inflation” is experienced as a symptom of declining incomes and living standards.
In China, overall incomes are still rising and the “crisis” is about a further rise in consumption on top of that.
Obvious when I write it down.
Altandmain
Although I strongly disagree with many of the commentators here on cars and urban planning,, I do agree that the discussion about China’s economy “collapsing” is an increasingly desperate lie peddled by the West, which is the real set of nations collapsing.
The double digit growth was never sustainable in the long run. Ironically part of the challenges of slowing growth is that the rest of the world. China is the world’s main manufacturing nation, and when the rest of the world’s economy slows, there’s less people to buy Chinese goods abroad.
Technologically, China continues to advance. As of late there is a lot of soul searching in the West on the 5nm chip bands. I have no doubt that China will someday make its own EUV machines and whatever comes after. Similarly, jet engines is the only other technology that China hasn’t completely perfected – in particular the turbine blades are one of the toughest parts of material science.
Most of the other deflation is falling real estate prices, which should have never been allowed to reach such a high level to begin with. That’s tough for those whose homes are worth less than they paid, but it won’t result in the kind of homelessness crisis the US faced after 2008 and is facing today. Real inflation adjusted incomes are still rising in China.
Politically there have been attempts to reduce inequality and to make China more meritocratic (the bans on tutoring were part of that).
China is by no means perfect, but it’s still progressing in the right direction. There’s also an attempt at self-correction from the senior leadership. The same cannot be said of the West.
Jan Wiklund
So says also Le Monde Diplomatique: https://mondediplo.com/2024/02/08china:
“In fierce headwinds, China’s economy still grows
China’s real estate sector is in trouble and graduates struggle to find the jobs they want. But despite deep challenges, Western predictions that the Chinese economy is heading for a crash have been wrong.”