Following the decline in demand from the United States, Chinese manufacturers are being forced to fiercely compete for domestic orders. The increase in U.S. tariffs has raised concerns about domestic inflation in the United States, but domestically in China, there are worries about being forced to sell goods at lower prices due to trade wars.
The escalating currency tightening is worsening Beijing’s longstanding economic troubles. With weak domestic demand and industrial overcapacity leading to enterprises engaging in intense price wars to secure orders.
In addition to a series of tariff hikes by the United States, Chinese enterprises also face challenges from China’s gray enforcement, various regulations and taxes, as well as challenges in the economic environment.
“China’s issues… are predominantly related to demand because of the problem of overcapacity it faces,” said Gary Ng, a senior economist at a French banking institution, to the South China Morning Post. “Losing overseas markets will put pressure on profit margins of Chinese enterprises and intensify domestic competition.”
Since January this year, the United States has raised tariffs on Chinese imported goods by a total of 125%, and also eliminated the minimum tariff exemption for packages under $800, while doubling the previously announced tariffs on small packages from China to 90%.
Xu Tianchen, a senior Chinese economist at a think tank, stated that the high U.S. tariffs on China are essentially equivalent to a trade blockade against China. Exporters from China will have to compete in a smaller market.
He believes that the industrial sector in China will experience the most significant downward pressure on prices, which, combined with soft global demand leading to a substantial drop in global commodity prices, will further intensify the downward pressure on Chinese goods’ prices.
With the decrease in demand in the U.S. market, Chinese manufacturers will face a large amount of unsold inventory. They will have to try to dump surplus goods to other countries, where the lack of the massive purchasing power like that of the United States will also lead to increased taxes and anti-dumping measures to protect their own industries. Consequently, competition within China will further intensify, forcing enterprises to lower prices.
Ng told the South China Morning Post that the risk of currency tightening may continue for another one to two years.
China is set to release the Consumer Price Index (CPI) and Producer Price Index (PPI) for March on Thursday, key indicators for measuring consumer prices and factory prices.
According to a survey of economists conducted by financial data provider Wind, it is expected that the CPI for March will decline by 0.12% year-on-year, compared to a 0.7% decline in February. Furthermore, PPI is expected to continue its downward trend, dropping by 2.19%.
According to data from China’s National Bureau of Statistics, the Consumer Price Index (CPI) in China rose by only 0.2% in 2024, well below the official target of 3%. During the same period, PPI declined by 2.2%, lower than the 3% decrease in 2023.