China’s Economy Faces Yet Another Threat: Falling Prices

China’s Economy Faces Yet Another Threat: Falling Prices

BEIJING — 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, such as China. Overall debt is now larger in China, compared with national economic output, than in the United States.

It has been nearly eight months since China’s top leader, Xi Jinping, relaxed stringent anti-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, 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.

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 those as 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 has forced factories and other businesses to cut prices.

Perhaps most worryingly, particularly in a country where three-fifths of household assets are tied up in real estate, housing prices are falling.

According to the Beike Research Institute, a Tianjin firm, prices of existing homes in 100 cities across China have fallen an average of 14% from their peak in August 2021. Rents have fallen 5%.

This article originally appeared in The New York Times.