Americans May Envy China's Deflation. They Shouldn't.

"Living in China is getting cheaper. Because rents in my neighborhood in central Beijing are dropping, my wife and I pressed our landlord to reduce ours by $140 a month in a new lease that we signed last month. He wasn't too happy about it, but he's lucky that we didn't move out. Given the desperation of local landlords, we probably could've saved another $500 a month had we switched to a comparable apartment nearby."

"Deflation in China is a result of the most basic of market principles: too much supply and too little demand. China's government has spent decades promoting investments in housing, factories, and infrastructure-investments that enabled China's rapid growth but that have also left the economy burdened by apartments and assembly lines that well exceed demand. This mismatch explains why prices for Chinese-made goods have been falling for more than three years."

Rents and consumer prices in China are falling as excess supply meets weak demand. Local landlords are cutting rents amid desperation, enabling tenants to negotiate significant savings or relocate for larger cuts. Decades of government-promoted investments in housing, factories, and infrastructure created capacity that exceeds current demand, producing persistent price declines for Chinese-made goods for more than three years. Deflation threatens economic growth by encouraging delayed consumption. Chinese leaders are responding with political directives to limit price competition. Regulators have increased oversight to curb aggressive price-cutting.

Read at The Atlantic