Xi Jinping, China are facing bigger threat than Donald Trump tariffs. Can Beijing tackle both issues simultaneously?

For China's workers, financial security is further out of reach than ever. They are stuck in China's deflation loop. Stubbornly low prices on everything from eggs to a hot delivered meal have cut into the profits that businesses make, gnawing at the money workers earn. Everyone has become tighter with money, pushing down prices even more, as per a report.

A bruising trade fight with the United States is the last thing anyone wanted, especially policymakers who have floundered to stop prices falling. It threatens to make things harder than they already were for China's hundreds of millions of workers.

The Chinese government has for several years been dealing with deflation, the pernicious side effect of a property crisis crawling through the economy and putting a freeze on much economic activity. The big exception has been manufacturing, where factories are making far more than Chinese consumers can buy. Those goods, including electronics and clothes, are sent overseas to countries like the United States. Exports accounted for nearly a third of China's economic growth last year, NYT News Service reported.


Now, Beijing must go toe-to-toe with the United States, which is the biggest buyer of its goods and is aggrieved at how little China buys from it. The row escalated last week when President Donald Trump placed a minimum tariff of 145 per cent on all Chinese goods, making it all but impossible for China to export its goods to the United States.

China's economy grew steadily at the start of the year, propelled by a surge in exports ahead of trade restrictions. But economists estimate that exports will soon drop to the lowest level since the 2008 financial crisis.

Consumer prices in March fell 0.1 per cent from a year earlier, the second consecutive month that happened, and producer prices dipped 2.5 per cent. While there were some months of exception, prices have fallen for six consecutive quarters.

One way to tackle deflationary forces would be to fire up domestic spending, which accounts for around 39 per cent of China's growth, significantly less than the average for most major economies. But measures taken by Beijing so far to do this -- mostly in the form of subsidies like the trading in of old goods -- have barely moved the needle. This week two of China's most popular e-commerce platforms, Tencent and Douyin, said they would help export-oriented businesses market themselves to consumers in China.

Beijing has been battling the pressures of deflation since its "zero COVID" policy, which dampened business outlook and consumer appetite to spend. And the property meltdown has erased much of the net worth of many Chinese families, which traditionally placed most of their savings in real estate. The job losses in the real estate sector, which at its peak accounted for a third of the economy, are staggering.

FAQs

Q1. How long has China been battling pressure of deflation?
A1. China has been battling the pressures of deflation since its "zero COVID" policy.

Q2. What do we know about China's economy?
A2. China's economy grew steadily at the start of the year, propelled by a surge in exports ahead of trade restrictions. But economists estimate that exports will soon drop to the lowest level since the 2008 financial crisis.