The information that prices are falling, as they are in China, may be welcomed by Americans who are already under stress from prices. But, financial news about inflation is rarely positive, and China is not affected by it. The Middle Kingdom’s rising depreciation starkly contrasts with other reports of economic issues in that formerly juggernaut-like business. Consumer rates have decreased for the past two decades, and as of November, the most recent month for which data are available, they were about 0.5% lower than they had been a year ago, according to Beijing’s National Bureau of Statistics. Over the past 12 months, prices at “the factory gate,” or the equivalent of American producer prices, have decreased by 3.0%, according to China’s statistics bureau. Although they are small quantities, these are telling. They point to at least three major financial problems, none of which an market wants: an excessive source of the wrong things, inappropriate demand, and a tight financial environment.
Although Beijing is largely to blame for this situation, not all of it can be attributed to the actions of President Xi Jinping and his cabinet members. The movement of Chinese exports to these two sizable markets has been slowed by slowing in the U.S. market and the impending recession in Europe, but this is not Beijing’s fault. Because Washington and Brussels have shown a clear animosity toward China business, purchases of Chinese goods have also decreased. The United States talks about “de-coupling” its business from China’s, but in reality they are the same, as does Europe. Purchase flows into China from the north, as well as from Japan, have decreased as U.S. and Western businesses are increasingly sourcing from locations outside of China.
Beijing is to blame for China’s severe susceptibility to export declines if these burdens on a vital sector of the economy could not have been alleviated domestically. Beijing has long been advised by the International Monetary Fund (IMF) to diversify its economic efforts away from exports and toward economic supports deposited with domestic consumers, generally and particularly in services. Despite echoing the IMF, Xi and his administration have urged its planners to keep investing in exports with area, labor, and capital. China’s economy is suffering more from the damage of those import selling presently that major industry in the US and Europe have retreated than it would have otherwise had Beijing made the changes it and the IMF mentioned.
Manufacturers and wholesalers have rightly attempted to move some of their product onto the local Chinese market in light of the decline in overseas sales. They have had only moderate victory, in part because the export-worthy product is inappropriate for the local market. Chinese firm would have been well on its way to the adjusting they so desperately need right now if the organizers had implemented the change suggested by the IMF and supported in their leaders’ rhetoric. The rapid shift of goods to the local market, particularly the incorrect product mix, contributes to escalating deflation.
This is not all, though. The burden of bad debts on Chinese banking has also exacerbated the recession and economic issues. Chinese economic institutions, both personal and state-owned, lack the resources to fund the kinds of projects that would increase local need and boost the economy as a result of the collapse of Chinese property developers and the debt load on local governments. Even worse, the collapse of residential real estate development has resulted in a decrease in property values and, consequently, in the net value of the once-prosperous Chinese middle school. The money uncertainties left over from the severe and long lockdowns imposed by Beijing’s zero-Covid policies are further contributing to this loss of customer confidence. Foreign homes have reduced their spending as a result of both of these factors, which has slowed economic development and, of course, also contributes to recession.
These financial problems are also a result of Beijing’s speech. President Xi Jinping has criticized personal Chinese companies, big and small, for some time now, saying that they are working against the Chinese citizens by pursuing income rather than advancing the Communist Party’s plan. He has cut off a source of growth and career that would have otherwise existed by using state power to prevent businesses from receiving funding for growth. Therefore, it should come as no surprise that secret business in China is frugal with its spending on growth and development. The secret key industry’s cumulative investment in set assets has decreased by about 10.6 percent over the past 12 months, according to the Beijing National Bureau of Statistics. This shortage has slowed the rate at which China could have changed its business apart from its import dependence in addition to reducing demand and contributing to the depreciation. It is ironic that Xi’s terrible pro-communist rhetoric has made China more open to American and European pressure.
The conditions are not at all favorable for Chinese expansion. Beijing might assert that it has achieved its goal of 5% true progress for 2023 in the next month or two. If it makes for a claim, there will be plenty of justifiable speculation about how the data ministry has gathered the data to make Beijing seem good, both inside and outside of China. Not for the first day, either. If Beijing decides to achieve its goal of 5% true growth for 2024 once more, factors like the deflation suggest that doing so will require a lot of statistical legerdemain.