China faces economy-wide deflation, new data suggested, exacerbated by a bruising price war in the automotive industry.
Industrial profits fell 9.1% in May, the sharpest fall in months, and “momentum is clearly rolling downhill,” FX Street reported. Deflation is a concern because it incentivizes consumers to delay purchases, slowing the economy.
China’s electric vehicle companies are locked in a race to the bottom on prices, as oversupply and weak demand make it harder to shift inventory, and manufacturing overcapacity has created widespread gluts in other sectors: Mining saw first-quarter profits fall 29% year-on-year, while house prices have long been falling due to oversupply. Market consensus is that further stimulus is needed to bolster a fragile economic recovery, Reuters reported.