- China’s consumer price index (CPI) fell 0.7% year-on-year in February, missing expectations, while producer prices dropped 2.2%.
- Discount stores are becoming more popular, intensifying deflationary pressures and impacting traditional retailers.
- Analysts warn that price wars and shrinking household demand pose risks to economic growth.
- Premier Li Qiang signaled a focus on boosting consumer spending, lowering the inflation target to 2% for 2025.
At the Wankelai store in Beijing, manager Leo Liu announced steep discounts in a flash sale, eventually selling a cotton jacket for just 20 yuan—less than a tenth of its original price of 239 yuan ($33). However, he had to give away a 39-yuan undershirt, as no one was willing to buy it, according to Reuters.
“We do flash sales to reduce inventory pressure,” said Liu. “We run a small-profit, quick-turnover business model.”
His store, which sells clothing, snacks, and household items, holds four such sales daily. While making only thin profits, some items are sold at a loss. “We serve ordinary people,” he added.
With economic uncertainty affecting jobs and incomes, Chinese consumers are increasingly turning to discount retailers, accelerating deflationary trends.
Deflation and Market Pressures
Analysts caution that the growing demand for budget-friendly options may exacerbate deflation.
“The broader shift toward more value-for-money purchases will play a role in deflationary pressures,” said Lynn Song, chief Greater China economist at ING. “This sort of intense price competition likely adds some pressure on more traditional retail models as well.”
Despite surging exports due to increased industrial capacity, price wars are becoming widespread across industries. Restaurants are offering 3-yuan breakfast menus, and electric vehicle giant BYD has slashed prices below $10,000 for certain models. Starbucks also lost its top market position in China to budget-friendly rival Luckin Coffee.
“Corporate strategies often seem to prioritize market share instead of profits,” noted Louis Kuijs, chief Asia economist at S&P Global Ratings. “That can really complicate the situation for everybody in that sector driving down prices by just staying there, whether you make any profits or not.”
Consumer Spending Remains Weak
Despite aggressive discounting, many shoppers remain cautious.
Lily Liu, a 34-year-old financial auditor, said her income has declined since the COVID-19 pandemic. “People like us, struggling a bit financially, are obviously going to shop here,” she said. “I feel like my job could be gone at any moment. I’m working today, but I could be laid off … maybe even tomorrow.”
She has cut back on travel and dining out, shopping only during store sales.
Vivian Liu, a student looking for cheap snacks, enjoys window shopping with friends but rarely buys anything. She has struggled to find a job since graduating two years ago with a biology diploma, and now, she studies while taking temporary part-time jobs.
“I don’t have much money to spend,” she said. “I save a bit every month. I have no idea how the job market will be in the future. It’s scary.”
With youth unemployment at 15.7%, weak consumer confidence remains a significant hurdle for economic recovery.
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Source: Reuters
