Decoding China: Fear of deflation in the Year of the Dragon international business news
This Lunar New Year, also known as the Spring Festival or Chinese New Year, is an annual celebration of the first lunar cycle of the New Year. It is a week-long national holiday in China and this year it starts on February 10.
it is year of the DragonAccording to the Chinese zodiac, and it symbolizes “fortune, wisdom and success”.
But the optimism these words inspire is overshadowed by the current situation of the Chinese economyMany experts are predicting a recession.
Ahead of the holidays, media reports highlighted a drop in demand for pork – a key ingredient in traditional dishes made during the festive season – despite falling prices.
Although prices soon rebounded as consumers stockpiled pork amid the harsh weather, economists believe the rally is not sustainable.
Stock market decline a bad omen?
Meanwhile, the authorities have taken several measures to stabilize the ongoing recession in the country’s stock market. Many investors and traders see this as a bad omen.
In China, what happens on state-controlled stock exchanges is always seen as a harbinger of economic growth and development. The Shanghai SSE Composite Index has fallen about 13% in the past year.
“If the year doesn’t start well and consumers don’t spend their money, China will remain in deflation for a long time,” said Wang Guo-chen, an economist who focuses on China at the Chung-Hua Institution for Economics. research, told DW.
While deflation shows that goods were cheaper, it poses a threat to the broader economy as consumers postpone purchases in anticipation of further reductions.
The lack of demand, in turn, may force companies to cut production, lay off or lay off employees, while potentially also reducing existing stock – reducing profitability even if costs remain the same. May be less.
When prices rise, economists consider deflation to be worse than its opposite, inflation.
Budget travel is increasing
Lunar New Year is usually the busiest time of year in China. Traditionally, it is a time of family gatherings, with money spent on purchasing new household items, preparing feasts, and purchasing gifts for relatives and friends.
“This is the most important festival for Chinese people,” Kong, 31, who lives in Shanghai, told DW. “And saving a lot of money to organize a feast and buy gifts is definitely necessary.”
Instead of feasting at home, Kong decided to take a trip to southern China with his family this year – an option increasingly popular among the Chinese.
“It looks like there will be a lot of families traveling during Chinese New Year,” he said, pointing to an increase in hotel bookings. “When I tried to book a month before the holidays started there were not many family rooms available.”
Last month, China’s state-affiliated tabloid Global Times reported that outbound travel bookings from Singapore, Malaysia and Thailand had increased 15 times year-on-year.
Despite the impressive numbers, it is important to note that the increase was compared to figures for 2022, when it became exceptionally difficult for Chinese to travel internationally due to stringent infection control measures as part of Beijing’s zero-COVID policy. Was.
The government also anticipates a surge in domestic travel this year, with people making an estimated 9 billion trips in the 40 days around the long holidays.
But Hou, a Chinese tourist who is currently on a skiing holiday near Beijing, said, “hotel room prices are cheaper than in years past.”
Hou, a public school teacher, said she herself was not much affected by the economic downturn, but “I have heard from my friends that many people are suffering from unemployment and salary cuts. They are buying less clothes and gifts for the festive season. ” ,
Official statistics may not represent reality
In January, China released its GDP growth figure for 2023 – 5.2% – which meets the country’s annual target.
Total sales of consumer goods rose 7.2% last year to the equivalent of €6.3 trillion ($6.8 trillion), according to the Chinese Bureau of Statistics.
The food service industry alone grew by 20.4%, while the retail sector grew by 5.8%.
But some analysts have expressed doubts about the figures.
“There’s an anomaly here,” Wang said, pointing to data showing rising restaurant revenues while, at the same time, falling prices for foods like pork.
“It got me thinking: So, what are the Chinese actually eating?” Wang added. “Either there is a problem with restaurant revenues, meaning the figure has not increased that much, or food prices are not that low.”
Wang is not alone in questioning the accuracy of Chinese figures. “Economists now largely regard Beijing’s official economic data as merely a reference point,” the Financial Times wrote in an editorial on January 17.
“If the beginning of the year is not successful, it will naturally have a negative impact on the entire year,” Wang said.
it is year of the DragonAccording to the Chinese zodiac, and it symbolizes “fortune, wisdom and success”.
But the optimism these words inspire is overshadowed by the current situation of the Chinese economyMany experts are predicting a recession.
Ahead of the holidays, media reports highlighted a drop in demand for pork – a key ingredient in traditional dishes made during the festive season – despite falling prices.
Although prices soon rebounded as consumers stockpiled pork amid the harsh weather, economists believe the rally is not sustainable.
Stock market decline a bad omen?
Meanwhile, the authorities have taken several measures to stabilize the ongoing recession in the country’s stock market. Many investors and traders see this as a bad omen.
In China, what happens on state-controlled stock exchanges is always seen as a harbinger of economic growth and development. The Shanghai SSE Composite Index has fallen about 13% in the past year.
“If the year doesn’t start well and consumers don’t spend their money, China will remain in deflation for a long time,” said Wang Guo-chen, an economist who focuses on China at the Chung-Hua Institution for Economics. research, told DW.
While deflation shows that goods were cheaper, it poses a threat to the broader economy as consumers postpone purchases in anticipation of further reductions.
The lack of demand, in turn, may force companies to cut production, lay off or lay off employees, while potentially also reducing existing stock – reducing profitability even if costs remain the same. May be less.
When prices rise, economists consider deflation to be worse than its opposite, inflation.
Budget travel is increasing
Lunar New Year is usually the busiest time of year in China. Traditionally, it is a time of family gatherings, with money spent on purchasing new household items, preparing feasts, and purchasing gifts for relatives and friends.
“This is the most important festival for Chinese people,” Kong, 31, who lives in Shanghai, told DW. “And saving a lot of money to organize a feast and buy gifts is definitely necessary.”
Instead of feasting at home, Kong decided to take a trip to southern China with his family this year – an option increasingly popular among the Chinese.
“It looks like there will be a lot of families traveling during Chinese New Year,” he said, pointing to an increase in hotel bookings. “When I tried to book a month before the holidays started there were not many family rooms available.”
Last month, China’s state-affiliated tabloid Global Times reported that outbound travel bookings from Singapore, Malaysia and Thailand had increased 15 times year-on-year.
Despite the impressive numbers, it is important to note that the increase was compared to figures for 2022, when it became exceptionally difficult for Chinese to travel internationally due to stringent infection control measures as part of Beijing’s zero-COVID policy. Was.
The government also anticipates a surge in domestic travel this year, with people making an estimated 9 billion trips in the 40 days around the long holidays.
But Hou, a Chinese tourist who is currently on a skiing holiday near Beijing, said, “hotel room prices are cheaper than in years past.”
Hou, a public school teacher, said she herself was not much affected by the economic downturn, but “I have heard from my friends that many people are suffering from unemployment and salary cuts. They are buying less clothes and gifts for the festive season. ” ,
Official statistics may not represent reality
In January, China released its GDP growth figure for 2023 – 5.2% – which meets the country’s annual target.
Total sales of consumer goods rose 7.2% last year to the equivalent of €6.3 trillion ($6.8 trillion), according to the Chinese Bureau of Statistics.
The food service industry alone grew by 20.4%, while the retail sector grew by 5.8%.
But some analysts have expressed doubts about the figures.
“There’s an anomaly here,” Wang said, pointing to data showing rising restaurant revenues while, at the same time, falling prices for foods like pork.
“It got me thinking: So, what are the Chinese actually eating?” Wang added. “Either there is a problem with restaurant revenues, meaning the figure has not increased that much, or food prices are not that low.”
Wang is not alone in questioning the accuracy of Chinese figures. “Economists now largely regard Beijing’s official economic data as merely a reference point,” the Financial Times wrote in an editorial on January 17.
“If the beginning of the year is not successful, it will naturally have a negative impact on the entire year,” Wang said.
