Consumer prices have fallen in China for the first time in almost two years, exports are down, and rumor has it that one of the country’s top private property developers is experiencing a liquidity issue.
According to interviews with experts conducted by ThePrint, the causes range from previous governmental mistakes to rising debt levels, low consumer confidence, a faltering real estate market, and a continuing trade war with the United States.
According to Sriparna Pathak, an associate professor of Chinese studies at O.P. Jindal Global University, falling consumer spending has pushed China’s economy into deflation as consumers lose faith in the country’s economic future.
With economic optimism low, consumers choose to put money aside in case of need. She said, “There are many reasons for this, but the three-year Covid lockdown enforced by the Chinese government is the immediate reason.”
According to the National Bureau of Statistics of China, the Consumer Price Index (CPI) fell by 0.3% from July 2017 to July 2018. The General Administration of Customs (GAC) said Tuesday that exports fell 14.5 percent in July compared to the same month a year ago.
The Chinese consumer market entered deflation as measured by the Consumer Price Index (CPI) decrease. According to a report by Reuters, “anxiety is rising that China is entering an era of much slower economic growth akin to the period of Japan’s ‘lost decades’ (from the 1990s), which saw consumer prices and wages stagnate for a generation.”
According to Pathak, China’s trade battle with the United States since 2018 has weakened exports and contributed to the country’s overcapacity and overstock of commodities.
Last month, ThePrint revealed that China is likewise struggling under a heavy debt load.
Provincial governments in China, which were mostly barred from borrowing in the wake of the 2008 global financial crisis, started establishing local-government financing vehicles (LGFVs) to generate money for massive infrastructure investment projects. The result was a nearly 100% increase in LGFV debt from 2017 to 2022.
On Tuesday, Reuters reported that Country Garden, one of China’s top private property developers, confirmed worries that the realtor was experiencing repayment troubles after announcing that it had not paid out two-dollar bond coupons due on 6 August totalling $22.5 million.
Pathak said that the interconnection of countries means that China’s economic problems will affect the global economy.