China’s consumer price index (CPI) fell by 0.1% year-on-year in May, highlighting growing deflationary pressure in the world’s second-largest economy. In response, businesses across multiple industries have launched aggressive price cuts—though analysts warn that such “race to the bottom” tactics may not be sustainable.
1. Deflationary Trends Intensify
• CPI Decline: Weak household demand and persistent overcapacity drove May’s 0.1% drop in consumer prices.
• Policy Concerns: Economists at Capital Economics predict that surplus supply will keep China in deflation through this year and into next.
2. Price Wars Across Sectors
• Automotive to Coffee: Carmakers, e-commerce platforms, and even coffee chains are offering steep discounts and flash sales to entice cautious shoppers.
• Dining and Retail: Some restaurants now advertise 3-yuan breakfast deals, while supermarkets hold multiple daily “flash sales” to clear stock and attract customers.
3. Booming Second-Hand Luxury Market
• Rapid Growth: The pre-owned luxury goods sector has expanded over 20% annually since the pandemic, according to Zhiyan Consulting.
• Deep Discounts: Platforms like Super Zhuanzhuan list Coach handbags at up to 90% off, with a bag that originally cost 3,260 yuan reselling for as little as 219 yuan (about \$30).
• Buyer-Seller Imbalance: While the number of sellers continues to rise, buyer demand remains flat, forcing further markdowns to move inventory.
4. Risks of Prolonged Discounting
• Sustainability Issues: Industry insiders warn that persistent losses could force discount-reliant businesses to close.
• Unemployment Concerns: Rising closures may lead to higher joblessness, further depressing household spending and reinforcing deflationary trends.
Conclusion
China’s aggressive price competition underscores a fundamental weakness in domestic demand. Although consumers benefit from lower prices in the short term, entrenched deflation could undermine business profitability, cost jobs, and complicate policymakers’ efforts to stabilize prices and revive economic growth.