Chinese Economics Thread

[Nevermore]

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China's July factory-gate prices miss forecast, deflation concerns persist​

By Reuters

• July PPI -3.6% y/y vs -3.6% y/y in June
• CPI 0.0% y/y vs +0.1% y/y in June
• Year-on-year core CPI at 17-month high
• Domestic demand needs to pick up, analysts say

————

Although China's high-end manufacturing industry is still advancing rapidly, the transition from the real estate engine to the high-end manufacturing and service industry engine remains painful. The youth unemployment rate in June was 14.5% and is expected to remain high for some time.

 

[GulfLander]

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China's July factory-gate prices miss forecast, deflation concerns persist​

By Reuters

• July PPI -3.6% y/y vs -3.6% y/y in June
• CPI 0.0% y/y vs +0.1% y/y in June
• Year-on-year core CPI at 17-month high
• Domestic demand needs to pick up, analysts say

————

Although China's high-end manufacturing industry is still advancing rapidly, the transition from the real estate engine to the high-end manufacturing and service industry engine remains painful. The youth unemployment rate in June was 14.5% and is expected to remain high for some time.

The youth refer to what age range?

 

[Nevermore]

The youth refer to what age range?

Youth unemployment rate refers to the unemployment rate of the labour force aged 16-24, excluding students enrolled in school.

 

[tphuang]

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China's July factory-gate prices miss forecast, deflation concerns persist​

By Reuters

• July PPI -3.6% y/y vs -3.6% y/y in June
• CPI 0.0% y/y vs +0.1% y/y in June
• Year-on-year core CPI at 17-month high
• Domestic demand needs to pick up, analysts say

————

Although China's high-end manufacturing industry is still advancing rapidly, the transition from the real estate engine to the high-end manufacturing and service industry engine remains painful. The youth unemployment rate in June was 14.5% and is expected to remain high for some time.

so the concern here is that because energy price is way down YoY, that stuff got cheaper to produce?

I mean the fact that YoY core CPI is at 17 month high is a pretty good sign to the other side.

 

[GiantPanda]

Ahahah...i wonder myself. Lol

On a serious note though, deflation is indeed a bad thing for China or any other country for that matter especially if its sustained for a long period of time. China needs to find way to get out of this sustained deflation loop, where most companies believe they can only compete or stay relevant by lowering prices by as much as possible even to the point of eating into the little profits they made. Its not sustainable and has other multiplier effects on consumption and productivity.

Deflation is a bad thing for a mature Western economy dependent on consumption on wealthy consumers to power growth.

But China is a developing country with less wealthy consumers that consume things on massive volumes once an affordable price point is met. In order for Chinese to consume as much as the developed world then the consumerables by necessity needs to be cheaper and the profits lower.

For things like HSR, EVs, high definition TVs, etc. Chinese people can and do consume more than the West because the price points are pushed lower and lower.

Then on top of that you have a threat of embargo from developed world which are meant to cut you off from products they produce and that they think you can't. In such a scenario, you need to push production in as many fields as you can. And that production will create some deflation.

For a developing country like China the problem had ALWAYS been inflation. No country fell because goods became too cheap and plentiful but many have fallen because they needed a wheelbarrow of currency to buy a loaf of bread or needed to wait in line for a bar of soap.

China has more and cheaper goods in nearly every category and gaining a share in the few that they haven't collapsed the price yet. Deflation, in my opinion, is about as real a problem as the cries about "overcapacity" in Chinese chips production when they have an embargo on China for chips.

Fuck them and full speed ahead. The pricing will work itself out as China's economy matures.

 

[qwerty3173]

Deflation is a bad thing for a mature Western economy dependent on consumption on wealthy consumers to power growth.

But China is a developing country with less wealthy consumers that consume things on massive volumes once an affordable price point is met. In order for Chinese to consume as much as the developed world then the consumerables by necessity needs to be cheaper and the profits lower.

For things like HSR, EVs, high definition TVs, etc. Chinese people can and do consume more than the West because the price points are pushed lower and lower.

Then on top of that you have a threat of embargo from developed world which are meant to cut you off from products they produce and that they think you can't. In such a scenario, you need to push production in as many fields as you can. And that production will create some deflation.

For a developing country like China the problem had ALWAYS been inflation. No country fell because goods became too cheap and plentiful but many have fallen because they needed a wheelbarrow of currency to buy a loaf of bread or needed to wait in line for a bar of soap.

China has more and cheaper goods in nearly every category and gaining a share in the few that they haven't collapsed the price yet. Deflation, in my opinion, is about as real a problem as the cries about "overcapacity" in Chinese chips production when they have an embargo on China for chips.

Fuck them and full speed ahead. The pricing will work itself out as China's economy matures.

The sole problem has always been employment. China is automating its manufacturing at a speed that is perhaps a bit too quick, so the job market is pushed hard. The days for human resource driven growth is already over, but there is still a decade before youths entering the labor market starts decreasing in numbers.

 

[Michael90]

But China is a developing country with less wealthy consumers that consume things on massive volumes once an affordable price point is met. In order for Chinese to consume as much as the developed world then the consumerables by necessity needs to be cheaper and the profits lower.

I dont think thats the point i was trying to make. We are talking about a situation where companies are engaged in such price competition that even the meagre profit margin any company in the world needs to keep going are affected more and more. Some company are even selling at cost price of the product with zero profit margins(some even at a loss) just to stay competitive and remain in the market, this is not sustainable since it even forces the most competitive and innovative companies to be left with no choice than to follow this trend thus engaging in a situation which is not productive for the countries industries, something which is not sustainable.
There is a very good reason the Chinese government is finally hitting a hand on the table for companies to stop such unsustaible price competition. Since its gotten to the point that companies are more and more focused on competing on price for the most part to the detriment of other sectors.
The chinese government is not stupid to call for such practices to stop. Do you think the CCP is not happy to have prices of all goods as cheap as possible for Chinese people, even if Chinese companies are making zero profits? Of course the party would love that in an ideal world where it doesnt affect the producers, however they know the effects won't be good for the country's industrial sector in the long term since its not sustainable way to run an industry. chinas leader have called it "disorderly competition/involution" and “ rat race-style’ competition for a reason. They have called for companies to focus more on improving product quality than only low price to compete..

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I agree with the chinese government. There should be a minimum threshold were prices should stop being lowered, when it eats on companies profits to the point where companies think the only way they can remain in the market is by selling at a loss IRRESPECTIVE OF HOW GREAT AND BETTER THEIR PRODUCT IS RELATIVE TO THEIR COMPETITION then it isn't a good model . There should be a mininun level og inflation(not too high not to low) so there needs to be a middle point where both consumers and producers are doing well. Hence the reason the government is obliged to step in like they are doing now. Im sure they have analysed and noticed this trend as well. They know the country economy and state better thsn you and me, so i believe they are calling for this practice to stop for a good reason. So you shoulf trust them nore on this .

 

[vincent]

I dont think thats the point i was trying to make. We are talking about a situation where companies are engaged in such price competition that even the meagre profit margin any company in the world needs to keep going are affected more and more. Some company are even selling at cost price of the product with zero profit margins(some even at a loss) just to stay competitive and remain in the market, this is not sustainable since it even forces the most competitive and innovative companies to be left with no choice than to follow this trend thus engaging in a situation which is not productive for the countries industries, something which is not sustainable.

You have a source for that?

 

[tamsen_ikard]

From ChatGPT:

Why deflation is bad​

Deflation = sustained fall in the general price level (negative inflation rate).

1. Delayed spending & investment
   • If people expect prices to be lower tomorrow, they postpone purchases.
   • This reduces demand, leading businesses to cut production, lay off workers, and lower wages — worsening the slowdown.
2. Debt burden increases (debt deflation)
   • Debts are nominal (fixed in dollar terms), so when prices and incomes fall, the real value of debt rises.
   • Households and companies struggle more to pay, leading to defaults and bankruptcies.
3. Profit margins shrink
   • Businesses sell goods at lower prices while many costs (wages, rent, loan payments) don’t fall as quickly, hurting profitability.
4. Wage rigidity
   • Wages are “sticky” downward — firms find it hard to cut salaries in nominal terms without hurting morale or causing turnover.
   • Instead, they lay off workers, increasing unemployment.
5. Deflationary spiral risk
   • Falling prices → less spending → less production → more unemployment → even less spending → further price drops.

Historical example: Great Depression (1930s) — deflation amplified economic collapse.

---

Why some inflation is good​

A low, stable rate (around 2% in many central bank targets) is seen as healthy.

1. Encourages spending and investment
   • With moderate price growth, there’s an incentive to buy now rather than wait — keeps demand steady.
2. Easier debt repayment
   • Inflation erodes the real value of fixed debts over time, helping borrowers and reducing defaults.
3. Wage flexibility without cuts
   • If inflation is 2% and a company gives a 0% raise, workers’ real wages fall slightly without a nominal pay cut — easier for businesses to adjust labor costs.
4. Buffers against deflation
   • If inflation is already positive, the economy can absorb small shocks without tipping into negative territory.
5. Signals economic growth (when demand-driven)
   • Mild inflation often reflects rising demand in a healthy economy, unlike deflation which usually reflects demand weakness.

 

[Eventine]

The sole problem has always been employment. China is automating its manufacturing at a speed that is perhaps a bit too quick, so the job market is pushed hard. The days for human resource driven growth is already over, but there is still a decade before youths entering the labor market starts decreasing in numbers.

That just means either the cross training opportunities aren’t sufficient or the economy isn’t innovating fast enough to create / enter new industries. There’s more than enough global industries in which China can still compete for market share. Youths are malleable.