You really think this is the only reason of deflation? When there are more products than demand, there is a deflation. It goes two ways:
- Production remains unchanged, consumer's demand reduces, price goes down. This is what you expected. This is usually bad.
- Production increased, consumer demand stay unchanged, price goes down. This is what you ignored.
Deflation is just reflection of the balance of supply and consumption, itself isn't good or bad.
Honestly, from reading many posts from you, I think you have a tendency of cherry-picking the convinient "truth" to fit your wish.
No, that's actually Western dogma 101.
Here in reality, what's happening is Chinese producers are becoming more efficient and productive.
People always say inflation is here because "Too much money chasing too few goods", people who watch western economic bullshit always focus on the too much money. But you hardly hear then china enjoys deflation might it be that china has scored some really nice commodities contracts witm talk about the too few goods, so what is the reasoh Russia like access to cheap food and gas.
That ft article is misinformation. Core inflation was positive at 0.6%. You can make your own judgement on why the ft fails to mention that. But clearly core inflation shows that private consumption is doing ok. Not strong, but not weak either. The overall inflation figure is massively affected by pork prices, so it's kind of irrelevant
If production is becoming more efficient, which I assume they are, that can mean two things:
1. It is possible to make goods with the same quality, features cheaper
2. it is also possible to create more sophisticated product with the same price
When an economy is booming and people have money in their pockets, they would go for the product with better quality with the same budget.
But in China, Maybe there is deflation cause people are going for goods with lower quality but also lower prices.
Moreover, you already see in the news how many Chinese products are slashing prices to entice customers cause there is not enough demand from customers. Why? Cause they are too cautious to spend or they don't have money to spend. When consumers are saving money, that's bad for the economy. Then government needs to spend more to takeaway their fear and also boost businesses which will in turn hire more people and thus raise consumer confidence to spend.
How? Well China needs to print more money and take on more debt! This is the American model of doing it. This is simply kicking the can down the road and inflating the bubble even bigger. This is a narcotic fix that has left America as sick as it is today. For you to propose this kind of fix for China, shows how shallow your understanding of economics is. Or maybe you desire for China to self-destruct like America, and the West.
But I know how you might argue back. "Oh but America is still the #1 economy today. Its still growing and is still unstoppable. Your 'smart and mighty' China is still only #2, and is not doing too well already. So shut up! The economic 101 gurus were right, and you are wrong. China doesn't know what the hell they are doing, and they are goin down baby. USA #1 forever!" Go ahead, I won't argue with you.
BTW, I am not suggesting China should continue to inflate existing bubbles. That doesn't mean China should not do more Stimulus. China is already doing the right things when it comes to spending. It is spending to boost Semiconductor and other self-reliance initiatives for example. It is spending in affordable housing for the poor which will again be a great help in terms of boosting consumption and raising living standard for the poor.
But, its not doing enough. it should boost these initiatives several times more. China as the biggest economy in the world should have the confidence to spend more with fiscal and monetary expansion when they are in deflation. Its actually a great opportunity to do monetary expansion. What is bad is stagflation, when there is a recession and inflation at the same time. China has great ammunition to expand with fiscal and monetary stimulus. But they are too cautious and think like they are a poor country like Thailand, Indonesia and the likes. But they are not.
