According to De Jong, the impending deflation has two causes. ‘Transportation costs, for example, are falling very rapidly. But I also read that Chinese economists attribute the rapid decline in inflation to the weak development of the economy, with a low demand for goods and services».
De Jong notes that China’s economy is lagging behind after the company reopened after the corona crisis. «The reopening has not yet led to a spectacular recovery in activity. That the downward pressure on inflation is therefore likely due to the weakness of the economy seems to me quite high.’
Interest rate increase
China is taking steps, for example by raising interest rates by the Chinese central bank, but according to De Jong it does not have enough resources. “Public finances are not in very good shape. Many lower governments in China already have large debts. So yes, this collides with the position of public finances.’
Yellen sees progress in US-China relations
It is difficult to predict whether China’s deflation will also translate into cheaper imports from China. “That doesn’t mean that if all of China’s domestic products become a little cheaper, their export goods will also become cheaper. Dutch inflation is, of course, closely related to inflation in other European countries, but there is no link between Chinese inflation and ours”.