Inflation has become a problem and a threat to most of the world since 2021. Constant price increase is a natural phenomenon (even healthy in economic terms, if growth is at 2% per year), but who horrify consumers who see how the shopping basket does not stop raising the price, in many cases, faster than their wages. Well, there is an economy in which prices do not cease to decline, and companies fight to see who makes the best offers (reduction of margins and suffering in their results) And discounts in an attempt to win customers. Starbucks was the last “sacrifice” of this price war, which pulls the IPC of China to a negative level and threatens the economy entering the spiral of the deflationist spiral. Decisions in “Micro” (companies and families) have more than visible influence on the variables “Macro”. This is what happens in the second largest economy in the world: welcome to the price war in China … a symptom of almost structural weakness.
Chinese general inflation came out of negative land in June for the first time since January, loading up to 0.1% of the year -10.1% in May, which exceeded market expectations. However, in addition to this statistical victory of Pirrus, the truth is that life remains the same and The threat of deflationExperts experts accuse this meager rebound (more energetic of basic inflation – without energy or food – which was restored by 0.6% – at the age of a maximum of several years) for the purposes of the consumer goods exchange program, one of the measures to stimulate the authorities that arrive with drip droplets. Nevertheless, they warn that this impulse will probably disappear soon, and that the main inflation is again worried at the end of the year. This generates the risk of a deflyanist spiral, a kind of trap that makes consumers buy less and less expectation of minor prices. The result is weaker growth and economic problems.
The price war is more alive than when. Starbucks was the last test. American coffee in mid -June announced that he would reduce the price of some of its ice drinks in China is on average about five yuan (about 0.70 dollars)In an attempt to attract more customers in an increasingly competitive environment and with consumers who think about it more than two times with spending. China has a serious problem with consumption.
War with offers and prices
In the publication on its social network Weixin, the American coffee shop network explained that it will use more “affordable” prices for dozens of its products, including Frappuccino and other coffee drinks, starting with Tuesday. Despite the fact that China is the second largest Starbucks market after the United States, the coffee sector is very competitive, and consumption has slowed the weakness of the economy and care for the safety of jobs in the face of men growth. According to the company itself, some of its products will be sold with 23 yuan.
Local competitors, such as Luckin Coffee or Cotti, reduced their prices to 9.9 or even 8.8 yuan. In addition, large technological platforms, such as JD.com and Alibaba, are included in the food delivery business, which enhances competition. Thanks to offers and coupons Chinese consumers can get coffee in just 2.9 yuan, that is, for about 0.40 dollars The Chinese have coffee at home.
A person close to Starbucks assured Reuters that this reduction in prices does not respond to a price war, But to the strategy for attracting more customers in the daytimeThe questionnaire, this source, which spoke under the anonymity for the fact that it is not authorized to declare: “Probably Starbucks has a long -term strategy focused on the demand for products without coffee in the evening lane.”
Although in the past the company assured that it would not participate in the price war, presented small drinks and discount coupons that reduced the price for customersThe profiles on the other hand, the American company seeks to resume its business in China by selling its business. China ceases to be an attractive economy for foreign companies. The pricing war, the slowdown of its economy and the obstacles that are imposed on foreign investments lead to the fact that companies from outside think long before investment. The weakness of the IPC and other prices is a symptom of a weakened economy.
Although it is true that more attention is usually paid to the aforementioned data on consumption prices (IPC) to better understand what is happening in China, you must look at the production prices. Everyone is known that in recent decades, China has become a “world factory.” Nevertheless, the Pandemia’s exit threw the Chinese with a weaker consumer (savings in the face of economic uncertainty and the ghost of the real estate crisis) and the industry producing a piece: in the end, most of the state support turned into production, innovation and infrastructure, and not into citizens. This led to a phenomenon known as “excessive power” or excess capacity.
In short, China produces much more than their consumers buy, increasing existing shares, immersing prices and rising pressure in order to export more goods to other countries. This left continuous holders in regions such as Europe, about The flow of Chinese goods at the price of demolition, which jeopardizes local industry. At the same time, they called the news, such as the decision of the Great Chinese Automobile BYD, electric vehicles, to join a wild price war with discounts of more than 30% in some of its models. Measure that other brands will have to follow in the middle of the aforementioned weakness of the Chinese consumer and the influence of international commercial tension.
The reflection of this dynamics in the drawings does not allow little discussion. Inflation of the production price index (IPP) continued to fall in deflation in June, up to -3.6% -year -10, which meant the 33rd month of reduction in prices and at least 23 months. Under interconcounted conditions, the drop in production prices remains by -0.4%. Although the prices for metal and energy are those that record the fastest descents, the production prices for strong consumer goods are also under pressure.
IPP indicates more falls
With the first semester of 2025, in an ING, ING analysts accept accounts. In the first half of the year KPI China remained a little deflational of -0.1% year -he -Ear, while the IPP deflation remains more than rooted in -2.8% -earThe profiles of these data, combined with a constantly negative GDP defaulter, do deflation, continuing to worry, recognizing from the study of the Dutch bank.
This pressing context can force the authorities to increase incentives and, thus, avoid a vicious circle of prices, business and wages. He can also increase the efforts that have already advanced the authorities to stop the war for prices obtained as a result of hard competition between companies.
“One of the main reasons is a contractile cycle characterized by strong price competitionas well as freezing and reduction of salaries. This will be a difficult task. Nevertheless, political leaders have recently focused on solving this problem, in order to improve the mechanisms of market production, promotion of consolidation and restructuring and solving practices outside the market that lead to an excessive price, ”writes Lynn Song, Ing Economist for China.
However, skepticism spreads. While Chinese leaders promised to reduce production in some industries, some analysts warn that the price war may last years, since local authorities seek to avoid loss of work. “It is likely that the energy efforts to stop this practice cause some short -term pain for the labor market before everything improves. We suspect that, given the external winds against, a more gradual approach can be accepted, ”they risk it.
“We hope that demand will weaken at the end of the yearSince export slows down and reduces the taxis pulse. Thanks to the proposal of goods that continues to exceed demand, constant excess capacity means that price wars can be probable among manufacturers, despite the government’s efforts to solve the problem, ”adds Cichun Juang, economic analysts, economic analysts, and economic analysts.
