The state of China’s economy has deteriorated, and it is only February.
The data released on Thursday indicated a 0.8% decrease in consumer prices for January, surpassing predictions by economists and representing the largest decline in 15 years.
In China, prices have remained steady or declined consistently since July. Despite the abandonment of the country’s zero-Covid policy over a year ago, consumers are still hesitant to spend on daily necessities and real estate, which has historically been the main contributor to China’s economic growth. Income growth has slowed down and the high unemployment rate has led to decreased wages for certain employees.
There is concern among economists that China’s ongoing low demand could have ripple effects globally, as it may need to rely on external demand to stimulate its economy.
The issue is particularly serious as Chinese policymakers have attempted to counter the decline in the real estate market by placing a significant focus on industrial manufacturing, specifically in environmentally-friendly technologies like electric cars and solar panels. There is a push for banks to lend more to manufacturers, while loans for the real estate industry have decreased. An increase in exports could worsen tensions regarding trade tariffs and unfair pricing. The UK is currently investigating potential underpricing of Chinese excavators, and the European Union has initiated an anti-subsidy investigation into Chinese electric cars, causing concern in Beijing.
According to Zhiwei Zhang, the chief economist at PinPOINT, a Hong Kong-based asset manager, China must act swiftly and decisively in order to prevent consumers from developing deflationary expectations. This statement was made to Reuters.
According to the National Bureau of Statistics of China, the decrease in consumer prices compared to the previous year can be attributed, in part, to the lunar new year holiday falling in January in 2023. However, this year it will begin on February 10th.
Experts are currently examining the potential impact of the year of the dragon on the Chinese economy, hoping it will ignite some much-needed growth. In light of the upcoming festivities, food prices, which decreased by 5.9% in January, are anticipated to receive a temporary increase as individuals come together for celebratory meals. The main contributor to the decline in prices was pork, which saw a significant drop of 17%.
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The ongoing challenges in China’s economy are proving to be persistent. Unlike past downturns, the government has not implemented a large-scale stimulus plan. President Xi Jinping has expressed a desire for “high quality growth” rather than the rapid double-digit growth seen in the early 2000s. The upcoming Two Sessions, the country’s annual parliamentary meetings beginning on March 5th, are eagerly awaited for potential solutions. The growth target for 2024 is anticipated to be around 5%, similar to last year’s rate. While this may seem modest compared to China’s past standards, it may be the new norm for the world’s second-largest economy.
Source: theguardian.com
