BEIJING/HONG KONG, March 11 — Leo Liu, manager of the sprawling Wankelai store in the Chinese capital of Beijing, spoke into a microphone, announcing progressively steeper discounts in a flash sale, until he finally sold a cotton jacket and a woman's undershirt.
In a symptom of China's deflationary economy, Liu eventually found a customer for the jacket at 20 yuan (RM12), or less than a tenth of its initial price of 239 yuan (RM145), but he ended up giving away the 39-yuan (RM24) undershirt, for which nobody wanted to pay.
The exercise was one of four each day in the store that sells clothing, snacks and basic household products just outside Beijing's financial district.
"We do flash sales to reduce inventory pressure," said Liu. "We run a small-profit, quick-turnover business model."
While his store was making "thin" profits, it sold some items at a loss, Liu said, adding, "We serve ordinary people."
Chinese consumers grappling with uncertainty about jobs and incomes are increasingly turning to discount stores at a time of expanding industrial capacity in the face of sluggish household demand.
But analysts say the success of such businesses is stoking deflationary pressures, which can start to drag on growth as their popularity grows at the expense of other retailers, as Japan experienced in the 1990s.
"The broader shift toward more value-for-money purchases will play a role in deflationary pressures," said Lynn Song, chief Greater China economist at ING.
"This sort of intense price competition likely adds some pressure on more traditional retail models as well."
Data on Sunday showed China's consumer price index missed expectations in February, falling by 0.7 per cent from a year earlier, while producer prices fell by 2.2 per cent, stretching a run of negative readings dating back to September 2022.
While the growing industrial capacity has led to surging exports, it is also fuelling deflationary pressures at home.
Price wars have become ubiquitous, from restaurants that push 3-yuan (RM1.80) breakfast menus to electric vehicle maker BYD cutting the price for one of its cars to below US$10,000 (RM45,000).
Coffee vendor Starbucks lost its market leader crown to cheaper local rival Luckin.
In a work report last week Premier Li Qiang flagged a greater focus on boosting household spending while cutting the official inflation target to about 2 per cent in 2025 from last year's target of about 3 per cent. Inflation was 0.2 per cent in 2024.
— Reuters
