China Deflation falling prices in raise concerns
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According to Chinese government data, the Consumer Price Index declined by 0.3 percent in July compared to the previous year. Experts say that this has increased the pressure on the Chinese government to revive the economy. China’s exports and imports also declined in July. Also, the debt of the government has increased a lot in the country and the real estate market is also facing a crisis. Youth unemployment has reached a record high in the country. The drop in prices has made it difficult for China to reduce its debt. Also, it is not easy to deal with other challenges.
what will be the effect on the world
Experts say that it is not easy to increase inflation. The government will have to spend more. At the same time, along with reduction in tax, a soft stance will have to be adopted in monetary policy as well. Consumer spending in developed countries has picked up significantly after the restrictions related to the Corona epidemic were lifted. But this did not happen in China. Due to weak demand there, the prices remained flat for the last several months. There has also been a drop in factory gate prices. That is, while the demand is gaining momentum in other countries of the world, the demand in China remains weak. China’s situation will be worse due to deflation. Due to this the date will increase further. This is not good news for the global economy either.
China is called the factory of the world. The reason for this is that China produces a large amount of things which are sold all over the world. If the situation of deflation persists in China for a long time, then it will affect the whole world. This will curb inflation. If cheap Chinese goods enter the world market, it will affect the manufacturers of other countries. This can affect the investment of companies and increase unemployment. Along with this, the profit and consumer spending of Chinese companies can also be affected. This can reduce the demand for energy, raw materials and food in the country. If this happens, global exports can also be affected. China is the biggest market in the world.
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Why is it bad news for China
China’s economy is already struggling with many problems. The country’s economy has not yet fully recovered from the effects of the pandemic. On Tuesday, the government released the export figures. The country’s exports declined by 14.5 percent in July, while imports also declined by 12.4 percent. This is raising apprehensions that the country’s economic growth may decline further. China’s property market is going through a crisis. Evergrande, the country’s largest real estate company, can go bankrupt anytime. The Chinese government is trying to tell that everything is under control but till now it has not taken any major step for its economic growth.
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