A deepening slowdown in the world’s second-biggest economy has now raised fears of deflation, which could be crippling for heavily indebted China.
The United States has spent much of the past 18 months struggling to control inflation. China is experiencing the opposite problem: People and businesses are not spending, pushing the economy to the verge of a pernicious condition called deflation.
Consumer prices in China, after barely rising for the previous several months, fell in July for the first time in more than two years, the country’s National Bureau of Statistics announced on Wednesday. For 10 straight months, the wholesale prices generally paid by businesses to factories and other producers have been down from a year earlier. Real estate prices are tumbling.
Those patterns have amplified concerns about deflation, a potentially crippling pattern of broadly falling prices that tends to also depress the net worth of households — as it did in Japan for years — and make it very hard for borrowers to repay their loans.
Deflation is particularly serious in a country with very high debt, like China. Overall debt is now larger in China, compared with national economic output, than in the United States.
The Chinese government has pressured economists inside the country not to mention the possibility of deflation, while publicly denying that deflation poses any risk.
“Generally speaking, there is no deflation in Chinese society, and there won’t be in the future,” Fu Linghui, a National Bureau of Statistics official, declared at a news briefing on July 17.
Source: Sputnik
