China struggles to halt slump as prices fall at fastest for 15 years

PRICES in China are falling at their fastest rate in 15 years as Beijing struggles to arrest the slump engulfing the world’s second largest economy.

Consumer prices fell by 0.8pc in January compared with the same month last year, marking the fourth straight month of deflation and the steepest drop since the financial crisis, the National Bureau of Statistics announced. It raises fears that efforts to stabilise markets and boost the economy are failing.

Ipek Ozkardeskaya, an analyst at Swissquote Bank, said: “It means that the Chinese efforts to boost growth and bring inflation back are not working according to plan.

“Money poured into the Chinese system doesn’t circulate in a way to stimulate the economy, and the radical measures that the government has put in place to prop up equity valuations hardly help China’s battered stock markets get back on their feet.”

China is in the midst of a property crisis, which threatens the real estate and infrastructure sectors that drive about one third of the country’s GDP.

The turmoil led to a court in Hong Kong last month ordering the liquidation of Evergrande, China’s debt-laden property giant. The economy is also struggling with an underwhelming recovery from the pandemic, while chaos in the pork market has also affected national inflation figures.

Prices spiralled after African swine flu swept through pig farms but they are falling again as production rebounds, with pork costing 17pc less now than a year ago. Deflation can worsen an economic crunch as falling prices mean debt burdens rise in real terms, with the prospect of lower future costs encouraging consumers to hold off spending for as long as possible, in turn exacerbating the slump.

The phenomenon will also affect the rest of the world, including the UK, as China exports a great number of cheaper manufactured goods to keep factories running even in the face of weak domestic demand. Duncan Wrigley, at Pantheon Macroeconomics, expects only a “slow and bumpy” recovery for the economy, with few signs of serious reforms from Beijing.

“President Xi Jinping’s recent focus on productivity growth is encouraging, but we see few signs that China is ready to implement the kinds of structural reforms needed to make a meaningful boost,” he said.