China’s consumer prices dropped 0.4% as factory deflation deepened

China’s consumer prices fell in August, showing that the world’s second-largest economy is slowing and struggling again to increase demand.

The statistics bureau reported that China’s consumer price index (CPI) fell 0.4% in August from a year earlier, a bigger drop than the 0.2% analysts had predicted. 

Beijing faces weaker prices as exports and demand slow

New data shows China’s consumer prices dropped in August after remaining flat in July. Economists blame the cheaper food prices that were unusually high the previous year. At the same time, the producer price index fell by 2.9% compared to last year. The margins may look small when compared to the 3.6% drop in July, but it still indicates that China’s industrial sector is struggling with weak demand both locally and internationally. These factors cut into their profits and limit their ability to invest in growing their operations for the future. 

Foreign countries are reducing their imports, and the trade tensions with the United States are also to blame for China’s low export rates. The country’s situation has left many producers struggling with lower sales and dropping prices. 

August was the 35th month in a row that producer prices dropped, which means factories have been receiving less money for their produce for nearly three years.

China is trying to counter these challenges by promoting heavy investment in manufacturing. It believes that with more production and high industrial activity, the overall economy will grow close to the official target of 5%.

However, these efforts are becoming less effective because overseas buyers aren’t raising their importation rates while local consumers are spending less. In the end, companies have no choice but to cut prices to move their products, limiting their ability to hire more workers. 

Officials push new policies to lift spending and stabilize growth

The Chinese government is now offering subsidies for households to replace their old appliances with new ones at more affordable costs. It also supports consumer loans by paying part of the interest to allow them to borrow more. 

As earlier reported by Cryptopolitan, central bank data indicates short-term consumer loans, often utilized for purchases, fell once more in July, down to Rmb 9.8 trillion, about $1.4 trillion. Still, with stronger borrowers pulling back, banks face riskier clients, according to Zhu. ICBC’s bad consumer loans topped Rmb 10 billion in March, double last year’s, with its NPL ratio at a record almost 2.4%%

Finally, regulators have tightened rules on industries that continue to produce more goods than the market can absorb. The government calls this set of laws the “anti-involution campaign.” They aim to reduce wasteful competition where companies keep producing even when demand is at an all-time low. 

Experts still have their doubts about how effective these measures can be. Research firm Gaveka warned that there is little to no evidence that these policies have succeeded in raising prices higher. It also raises concerns about the anti-involution campaign, saying the policy might force companies to reduce investments and new projects, dragging the growth down further. 

However, even with these warnings, Chinese officials are confident in their policies and the results they bring. Chief statistician at the National Bureau of Statistics, Dong Lijuan, said the core consumer price index rose for the fourth month, increasing by 0.9% in August compared to last year. 

He also said consumer prices had been falling for eight months on a month-to-month basis, but they finally went flat in August. This could mean the worst factory price cuts could finally be slowing down.

Dong said this proves the policies work, even though it may take longer for the effects to be felt across the country. Officials believe these measures will improve demand in China and give businesses more time to recover. 

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