CNBC: China faces increasing deflationary pressure, with corporate price wars undermining profits and employment
CNBC reported on July 12 that China is facing the challenge of intensifying deflationary pressure, as companies fall into a vicious cycle of price wars, leading to declining profits and slower job growth. Official data shows that consumer prices fell by 0.1% year-on-year in the first half of 2025, while producer prices dropped by 2.8%. Among 48 industrial categories, only seven saw price increases, and about half of the consumer categories maintained weak growth. A study by Natixis on 2,500 Chinese listed companies showed that companies generally maintain market share through "volume for price," but revenue and profits continue to face pressure. Alicia Garcia Herrero, the head economist for Asia-Pacific at Natixis, pointed out: "On the surface, companies dominate the market, but they pay a high price, making it difficult to support sustainable growth." Hu Weijun, chief China economist at Macquarie, said that the number of employees at A-share listed companies increased by only 1% in 2024, the lowest on record, "intense competition makes the actual economic feeling much lower than GDP growth rate."
Price wars have spread across multiple sectors, including electric vehicles, coffee drinks, steel, photovoltaics, coal, clothing, and commercial real estate. BYD has reduced prices of some models by nearly 30%, and Xiaomi SU7 is priced lower than Tesla Model Y; Starbucks' sales in China have declined, while local brands like Luckin Coffee are capturing the market with 9.9 yuan lattes. Beijing's commercial real estate tried to raise prices but led to increased vacancy rates. A report by Morgan Stanley pointed out that this round of overcapacity mainly involves private enterprises, making it more difficult for the government to coordinate mergers and restructurings, and high debt levels (about 100% of GDP) restrict fiscal stimulus space. Although China's GDP is expected to grow by 5.2% in the second quarter, meeting the annual target, Xu Jianwei, senior economist for Greater China at Natixis, warned that sustained declines in manufacturing profits may exacerbate household employment pressures in the second half of the year.
Worsening global trade conditions further amplify the challenges. Goldman Sachs analysis shows that tariffs imposed by the US, EU, and Canada have prompted Chinese automakers to accelerate overseas factory construction, which could lead to overcapacity in five of seven industries, including electric vehicles and lithium batteries, within the next five years, leaving only air conditioners and electric vehicles with relatively demand space. The Central Financial Commission meeting on July 1st emphasized the governance of "low-price disorderly competition." The Chinese magazine Qiusi published an article warning of the serious damage caused by such behavior to the economy, but demand-side stimulus remains a necessary means to achieve growth targets.
Original: https://www.toutiao.com/article/1837392371522570/
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