- Wednesday, October 16, 2024
The latest economic data from China indicates a decline in consumer prices compared to the previous year, posing challenges for the world's second-largest economy as it strives to recover from the impact of the Covid-19 pandemic.
Although this news did not significantly impact the stock market on Thursday, with the Shanghai Composite remaining relatively stable, Hong Kong's Hang Seng experienced a slight dip of 0.3%. However, prominent retailers such as Alibaba and JD.com observed even greater declines.
While October's consumer price index recorded a 0.2% drop from the previous year, it is important to note that this does not amount to deflation in the traditional sense. Deflation, which typically involves a prolonged period of decreasing consumer prices and asset values, can have severe and widespread consequences.
Robert Carnell, an analyst at ING, cautions against dismissing China's current situation as deflation. He emphasizes that it represents a low underlying inflation rate, indicative of weak domestic demand. Although this is cause for concern, comparisons to Japan's long-lasting deflationary period beginning in the 1990s may not be entirely applicable to China, given its vast population of 1.4 billion and its aspiration to catch up with advanced economies in terms of wealth levels.
The recent decrease in food prices, particularly the notable 30% decline in pork prices, has been a major contributing factor to the decline in inflation. This marks the second negative reading since July, with prices remaining stagnant in June and September.
These price data follow separate figures illustrating a decrease in exports and an unexpected contraction in manufacturing during October. China continues to face challenges in recovering from the impact of the pandemic, coupled with a significant property market slump.
To reignite economic growth, the government has implemented targeted stimulus measures. However, it treads carefully to avoid overheating asset prices. Despite these setbacks, the central bank governor expressed confidence in achieving the growth target of 5% for this year.
In summary, China's economy is grappling with deflationary pressures. While the road to recovery may be challenging, the government's cautious approach and its vast potential for development offer hope for a resilient economic future.
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