China’s economy in period of ‘deflation’ - BBC News

now while the UK is struggling to get inflation under control China's economy is suffering from the opposite deflation consumer prices declined in July for the first time in more than two years people and businesses are not spending and the world's second largest economy is struggling to revive demand most developed countries saw a boom in consumer spending after pandemic restrictions ended the huge increase in demand for goods that were limited in Supply coupled with Rising energy costs after Russia's invasion of Ukraine actually inflated prices but that has not happened in China there is increasing pressure now on Beijing to take a more active role in stimulating the economy and let's talk about all of this now we can speak to George Magnus an associate at Oxford University's China Center and a senior economic advisor to UBS Investment Bank thank you very much for joining us today first of all can you explain what deflation actually is sure I should doubt actually I was an advisor to UBS but haven't been for some years but anyway um deflation really is a sustained drop in the level of prices much as inflation is a sustained increase in the level of prices so to be fair um the kind of brouhaha about China today is the release of July's Consumer Price Index which showed a drop into negative territory I think the annual change was minus 0.3 percent specifically this is because this time last year pork prices went up by about 26 percent and they didn't this year so the comparison is very favorable in a sense and shows uh a lower reading of the consumer price level than was last year but it's not the only indication that has been uh prevalent of falling prices in China and it's something which the authorities really need to watch very closely can you explain how it is that we saw inflation after the pandemic restrictions ended in many countries including the UK the us but in China we've seen the very opposite yeah um in fact your package really kind of answered the question really and so for the United Kingdom and the United States western Europe and large parts of the world um I mean not only were citizens and households given a lot of financial assistance during the pandemic so they built up their Bank deposits or their savings um at during a time when they really weren't able to spend them that much because they couldn't go to the shops couldn't go on holiday and so on and so forth so when we were all able to congregate again and mix freely and travel by train and bus and airplane and what have you um I mean it did unleash this kind of Revenge consumption really which was to make up for lost ground and of course during the pandemic lots of factories lots of um you know Shipping Lines and um transportation cargo shipments and so on so forth lots of things were shut down or they weren't used or you know people were furloughed or laid off or whatever so there was this huge kind of demand and Supply mismatch coming out of the pandemic which pushed prices and then of course the Ukraine war had Energy prices on top now China hasn't really had any of that um what the problem that China has is that demand in the economy is chronically weak um and that's that's why prices are are so weak as well so what does Beijing have at its disposal to remedy this problem well that's the 64 trillion Yuan question really because um Everybody expects the government is going to do something and they're not too distant future because it keeps telling us it will um they keep talking about the fact that they want to strengthen domestic demand and quote strengthen consumption um but time after time they failed to take the measures that actually will do that um so we are certainly expecting interest rates to come down people are expecting a relaxation of regulations in the Housing Industry which is beleaguered and facing a long period of years ahead of shrinkage um and there may well be some uh further borrowing to finance infrastructure for example what we really want to see though is we want to see government measures to put income into people's pockets so it can go out and consume um okay and that Freight is something that may not actually be seen and quick final question what impact does the deflation in China have on the global economy well uh obviously there's a kind of a good news bad news story here the good news is that if Chinese companies are cutting prices then Chinese products sold abroad will be cheaper on the other hand the reason they're cutting prices is because demand is so weak and that means that you can't really sell as much into the Chinese market as you might otherwise prefer to do so takes your money and pays you money and takes your choice all right very interesting perspective there George Magnus thank you so much for joining us on the context thank you

Channel: BBC News

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Keywords: bbc, bbc news, news, world news, breaking news, us news, world

Id: CJE4sbObuIc

Length: 5min 15sec (315 seconds)

Published: Wed Aug 09 2023