The urban skyline and town in Shanghai China.
Lu Shaoji | Moment | Getty pictures
Beijing – From coffee to cars to real estate there is a recurring pattern in China: companies hurry into an industry and then use discounts to stay over water. This has worried economists.
Natixis' study of over 2,500 listed Chinese companies reinforce how the volume increases, while the value is violated by the deflation. “You can see the sector sector, companies through the company.”
“They dominate on the surface, but deep inside you pay a high price to dominate,” she said. “You do not receive the income required to continue.”
In the first six months of the year, consumer prices in the first six months of the year were 0.1% of the previous year by 0.1%, while prices for the factory gate producers decreased by 2.8% in the first six months of the year. During this time, only seven out of 48 subcategories of producer prices rose compared to about half of the 37 consumer price components.
This violent and often unproductive competition is described in China as an “involution”. The government has taken up the term in the latest political documents and demands efforts to combat the trend.
While the trend for the mass market has made technology and products more affordable, he also underlined the concerns of a vicious cycle, which forces companies to reduce more jobs.
“With involution, the Chinese economy feels much colder than headlining growth,” said Larry Hu, Chef -China economist at Macquarie, in a report on Thursday. He pointed out that the China in China in “A Share” companies expanded their workers by only 1% in 2024, the slowest that each recorded.
“From a basic perspective, involution is both a characteristic and a mistake of the” China model “,” he said. “Massive investments lead to price wars and bad returns for shareholders. For political decision -makers, intensive competition could help to achieve industrial improvement and self -confidence.”
China's push in electric cars was the most obvious example. The BYD industry giant offers some discounts of almost 30% or more this year and the smartphone company Xiaomi reveals its latest SUV under that of Teslas Model Y.
The US coffee giant Starbucks has to struggle with falling sales in China, since the prices of around 30 yuan per cup (4.20 USD) are retained -while a variety of competitors from Luckin Coffee to Boutiques sell lattes for only 9.9 yuan.
Even in commercial properties, real estate owners who tried to increase prices in Beijing were with higher places, said Michael Zhang, Senior Director of Office Leasing Advisory for JLL Beijing, reporters on Thursday. He noticed that there is still inadequate demand – with little expectation for a turnaround in the near future.
According to a survey by Reuters, China is expected on Tuesday that the growth of gross domestic product in the second quarter of 5.2% compared to the previous year. That would be slower than the increase in 5.4% in the first quarter, but corresponds to the national goal of around 5% growth for the year.
However, the second half of the year will probably show a much more stressful picture, warned Jianwei Xu, senior economist for Greater China at Natatixis. He also spoke in the webinar on Friday.
“We see that profits are still falling, especially for manufacturing companies,” he said. “There could be more households under stress [the second half of the year] Because it will be more difficult to find a job. “
Another challenge
This is not the first time that China deals with overcapacity, emphasized analysts and refer to excessive capacities in the state -dominated raw material sector about a decade ago. This time, however, fewer government companies are involved, which makes it more difficult for political decision -makers.
“The dominance of private companies in industries with overcapacity tend to make mergers coordinated, even with state guidance,” said Robin Xing, chief -china economist at Morgan Stanley and a team on Thursday in a report.
“The economy also begins from a weaker point that requires a more demanding stimulus to counteract the effects of the reduction in care,” the report said. “However, the government's level of debt is already high (~ 100% of GDP), which can limit its willingness and ability to carry out an aggressive tax expansion.”
China's leading managers are expected to maintain the current fiscal incentive in a high -ranking political office at the end of this month. Beijing in March increased the country's financial deficit to 4% for the year – compared to 3% in the previous year.
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In particular, Chinese President Xi Jinping on July 1th led a high-ranking meeting for financial and economic commission, which after a CNBC translation of the Chinese state media required a greater government of “low price, disordered competition”.
The official Qiushi journal of the Governing Chinese Communist Party on July 1 even explained several measures that promote the standardized behavior of the government in order to remedy the involution-style competition and to warn of serious economic damage. The article cited high -ranking government meetings from the past few months.
“In order to achieve the growth goal, Beijing will have no choice but to start a large demand timulus,” said Hu. “After that, the improved domestic demand would reduce the price competition between material manufacturers and internet giants. However, it will be a long and painful process for manufacturers to absorb the existing capacity.”
Spill global
The intensification of problems with the solution to China's domestic overcapacity is the trade war with the United States, as Goldman Sachs analysts pointed out in a report on July 1.
The US and the European Union became more critical of China's overcapacity problems last year. Both have linked tariffs in particular for Chinese electric cars to protect domestic car manufacturers. In April, the United States also aimed China with higher duties on the entire board.
The escalation of tariffs has made the Chinese manufacturers more determined to build factories overseas, which “may create redundant offer in the coming years,” says the Goldman report. The analysts estimated a capacity increase from 0.5% to 14% by the end of 2028, from the extension of 0.4% forecast a year ago to 10%.
And under seven sectors – air conditioning systems, solar modules, lithium batteries, electric vehicles, electricity necklaces, steel and construction machines – five have more capacity than the entire worldwide demand, according to the Goldman analysts. Only ACS and EVS – hardly – enjoy a market potential.
– Victoria Yeo from CNBC contributed to this report.
Correction: This story has been updated to reflect the right representative of JLL Beijing who spoke to reporters.