China’s Price Collapse: Flights for $0.45, All Strata Fight Deflationary Battle

Summary

China is experiencing an economic crisis marked by deflation, plunging prices, and shrinking consumer spending. Meat, fruits, and even luxury goods like Maotai liquor have seen drastic price drops, reflecting weakened demand and excess supply. The real estate market is in a severe slump, with properties being sold at steep discounts. The broader society is feeling the strain, with mounting debt, unemployment, and societal apathy taking hold, especially among the youth. This deflationary spiral mirrors the Great Depression's effects, as both debt and structural forces contribute to the economic collapse, leading to a sense of stagnation and uncertainty for the future.

Takeaways

• 😀 Prices for meat and vegetables in China are plummeting, with pork shoulder costing less than 9 yen per half kilo, and pork bones under 10 yen.
• 😀 Deflation and downgraded consumer spending have caused a significant drop in basic household consumption, with beef prices seeing the most dramatic decrease.
• 😀 China's beef market has experienced a 24% drop in wholesale prices over 6 months, reaching a 5-year low, largely due to increasing beef imports and weak demand.
• 😀 Fruit prices, such as cherries, have also fallen drastically, with cherries being sold for as low as 15 yen per half kilo, compared to over 100 yen earlier in the year.
• 😀 Maotai 1935 liquor has seen a sharp price decline, from 1,200 yen to as low as 690 yen per bottle, largely due to fading consumer interest and over-exploitation of the brand.
• 😀 Airline tickets have dropped to extremely low prices, with some flights as cheap as 3 yen, highlighting the deflationary trend affecting various sectors in China.
• 😀 The real estate market in China is facing a crisis, with massive price cuts in properties, including significant discounts in top-tier cities like Guangzhou.
• 😀 State-owned enterprises in China are selling properties at rock-bottom prices, with some units being sold for as low as 5,500 yen per square meter, reflecting a collapse in the housing market.
• 😀 Deflation in China is mainly driven by debt, with a growing risk of a deflationary spiral akin to the Great Depression in the U.S. in the 1930s, due to excessive borrowing and failing to meet debt obligations.
• 😀 The broader societal impact of deflation is evident, with the middle class and working class facing job insecurity, declining living standards, and an overall sense of societal stagnation.
• 😀 Young people in China, especially those from elite families, are increasingly disillusioned, with some turning to mysticism and new age practices, reflecting the growing loss of confidence in traditional societal structures.

Q & A

What is the main economic issue discussed in the transcript?

The main economic issue discussed is deflation in China, which is characterized by falling prices, weak demand, and reduced consumer spending. This deflationary trend is affecting various sectors, including food prices, real estate, and even luxury goods.

What factors are contributing to the drop in beef prices in China?

The drop in beef prices is attributed to a large price gap between domestic and imported beef, which has led to a surge in beef imports. Additionally, weak demand due to declining consumer purchasing power and the low prices of alternative animal proteins like pork and eggs have contributed to the price decrease.

How significant was the drop in wholesale beef prices over the past year?

Wholesale beef prices in China dropped 24% in just six months, reaching a five-year low. By the 50th week of 2024, the average weekly wholesale price was 60 yen per kilogram, down 1.3% from the previous week and 16.2% lower than the same period in the previous year.

How did the price of cherries in China change towards the end of 2024?

The price of cherries in China fell dramatically towards the end of 2024. While early shipments of cherries were priced above 100 yen per half kilogram, by late December, prices had dropped to as low as 15 yen per half kilogram, leaving many consumers regretful for buying too early.

What is the trend in the Chinese real estate market as described in the script?

The Chinese real estate market is experiencing a significant price collapse, with properties being sold at drastic discounts. In some cases, apartments in prime locations are being sold for up to 70% off the original price, reflecting the ongoing downturn and developers' desperation to clear inventory.

What role do debt-driven deflation and the banking system play in the current Chinese economic crisis?

Debt-driven deflation is at the core of China’s economic problems. Excessive borrowing, particularly by local governments and households, has led to a liquidity crunch. Banks are under pressure, tightening credit and causing a further contraction in both production and consumption, which exacerbates the deflationary cycle.

What is the difference between debt-driven deflation and structural deflation?

Debt-driven deflation occurs when excessive borrowing and poor debt management lead to a cycle of asset liquidation and reduced liquidity, causing a broader economic collapse. Structural deflation, on the other hand, arises from technological advancements and increased production efficiency, where prices fall due to higher supply and unchanged monetary policy.

How has consumer behavior been affected by the deflationary environment in China?

Consumer behavior has been significantly affected by deflation, with people experiencing job insecurity, rising debt, and declining living standards. Many individuals, especially the youth, have turned to spiritual practices like tarot reading and astrology for solace. There is also a shift in consumption patterns, with people opting for cheaper alternatives.

How are the elites and entrepreneurs in China reacting to the economic situation?

Many private entrepreneurs and elites are feeling trapped by the tightening political and economic environment. Some are fleeing the country, while others are resigning themselves to apathy. The younger generation, particularly the second-generation entrepreneurs, feels lost and lacks confidence in continuing their family businesses.

What is the significance of the CCP's leadership in the ongoing economic decline?

The Chinese Communist Party's leadership plays a crucial role in the ongoing economic decline by maintaining policies that have led to a shrinking private sector and tight political control. The leadership’s refusal to address systemic issues and adapt to economic changes has contributed to both political and economic stagnation in the country.