Understandably, deflation has many downsides. That's why the Chinese government is actively trying to lower the cost of borrowing and at the same time refinancing mortgage, corporate and local government debts.
Price war over electric cars in China is inevitable. Only a handful of traditional Chinese automakers have embraced electric cars. Those don't have a EV product lineup especially American, German, and Japanese automakers. The only option left is a price war to defend their market share. In this process, many automakers would fold.
I think people have overly scared of deflation due to Japan. Japan's deflation cycle is more or less self-inflicted. Japan central bank allowed an ultra low interest rate or even negative environment to spur growth and development. However, it also maintains a very strong yen. Ultimately, these two conditions have forced many Japanese companies and individuals to invest in the West and other developing countries which depressing the Japan's economy and wages.
Another inaccurate thinking is that unemployment is one of the main factors of deflation. I would point out that Japan has very low unemployment but still couldn't fix its deflation problem. Deflation didn't cause Japanese corporate to fire their workers in mass. People need to remember the reasons why America and Japan were able to enjoy low inflation is due to emerging market especially China's rise. Chinese manufacturing power had effectively kept the prices of many products low for decades. However, as less mainland Chinese are willing to be a factory worker and the labor cost increases, I don't foresee the trend of negative production costs can maintain in sustainable matter. Without cheap goods churn out in Chinese and developing countries' factories, the era of low inflation might have come to end much sooner than many people might have thought.
Price war over electric cars in China is inevitable. Only a handful of traditional Chinese automakers have embraced electric cars. Those don't have a EV product lineup especially American, German, and Japanese automakers. The only option left is a price war to defend their market share. In this process, many automakers would fold.
I think people have overly scared of deflation due to Japan. Japan's deflation cycle is more or less self-inflicted. Japan central bank allowed an ultra low interest rate or even negative environment to spur growth and development. However, it also maintains a very strong yen. Ultimately, these two conditions have forced many Japanese companies and individuals to invest in the West and other developing countries which depressing the Japan's economy and wages.
Another inaccurate thinking is that unemployment is one of the main factors of deflation. I would point out that Japan has very low unemployment but still couldn't fix its deflation problem. Deflation didn't cause Japanese corporate to fire their workers in mass. People need to remember the reasons why America and Japan were able to enjoy low inflation is due to emerging market especially China's rise. Chinese manufacturing power had effectively kept the prices of many products low for decades. However, as less mainland Chinese are willing to be a factory worker and the labor cost increases, I don't foresee the trend of negative production costs can maintain in sustainable matter. Without cheap goods churn out in Chinese and developing countries' factories, the era of low inflation might have come to end much sooner than many people might have thought.
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