China’s slowing economy is deflationary
Running Point and its chief investment officer, Michael Ashley Schulman, CFA, were quoted by The Epoch Times in an article — by Indrajit Basu, “Is China Exporting Deflation to the World?” — regarding the global effects from China’s slowing economy and especially its ramifications for the U.S..
Supply and demand at work
As China’s economy slows, demand for natural resources like copper and other industrial and construction inputs as well as for western luxury items may diminish, putting less upward pricing pressure on global goods. Additionally, as China’s domestic consumers spend less, more manufacturing resources are available for inexpensive exports. In other words, the effects from China’s lessened global demand as well as its increased available production capabilities are both deflationary for the world’s economies.
Article excerpts are below:
One strategy China employs to combat its flagging economy is selling off its vast surplus of manufactured products at reduced rates.
“Certainly, companies like TEMU and Shein are gaining market share and undercutting the dollar stores and other retailers in the U.S.,” Michael Ashley Schulman, chief investment officer at California-based Running Point Capital, told The Epoch Times.
According to Mr. Schulman, while the impact of China’s exported deflation has somewhat reduced “with the [post-pandemic] economic decoupling” in the U.S., “that could drastically change if BYD, or other Chinese electric vehicle makers start selling their vehicles in the U.S.”
Experts believe that given China’s global leadership in manufacturing sectors such as batteries, solar, drug intermediaries, and many more products, whenever the country’s manufacturers compete head-on, middle-market companies globally face margin pressure and sharp price drops for some inputs.
“We watch the currency exchange rate between China and the U.S. carefully to understand and measure this effect,” Mr. Schulman added.
“One of the main things on our radar is if Donald Trump wins the presidential election in November, he may raise tariffs further on Chinese imports, thus lessening their deflationary effect,” said Mr. Schulman.
Internally, to fight domestic deflation or disinflation, Beijing needs to boost consumer confidence in order to increase consumer spending across all income levels, he added.
A small hole not mended will become a big hole much more difficult to close.
Chinese Proverb
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