Speculated Deflation in the Chinese Economy

Since 2010, China’s economy began to experience staggering rates of inflation with gradual drops in producer prices.

Banks fear that potential deflation in the near future may lead to a “vicious cycle of contraction”. Relating to the idea of time value of money, deflation  would mean that less money circulates in the economy, leading to a rise in value of money over time. When money is worth more at a later time, debts become more expensive to pay, possibly causing consumers to cut down on spending and companies putting off investments. At the current stage, disinflation is not actually entirely detrimental, as lower prices of daily commodities allow families of average incomes to obtain those necessities more easily. However, in the long run, disinflation also indicates slowing economic growth, which poses a major problem for the world’s second largest economy.

As of now, there are several reasons leading to the falling producer prices. One being a general slump in the world economy along with reduced demand and consumption rates. Coupled with that, overproduction around the world are worsening the situation amidst diminishing demand. Although short term solutions such as cutting interest rates may ease the current circumstance, the problem at hand is difficult to solve in its essence. From my perspective, a long term solution would likely involve either limiting production or creating incentive for more consumption. Limiting production seems impractical as there is the tendency to produce more to profit more. Yet producing less, but of better quality, or even innovating new techonologies and discovering new consumer goods to produce could be a good start to changing the slowing world economy.


Many people may find it difficult to believe that a private business producing yarn can be highly profitable, but yes, pioneered by Laura Zander and her husband in 2002, the company Jimmy Beans Wool have achieved sales of up to 7 million in 2013. In consideration of Zander’s strategies and operations, there are several key actions that contributed to her business’s success. First, the company began from Zander’s personal interest in knitting. Zander was “thrifty” and “self-taught” when it comes to producing her product, which meant that the starting of the business involved relatively low costs. Furthermore, the Zanders had “strong views about the online customer service”. Not only did Mr. Zander, former software engineer, set up and design their own online website, but they also devoted much attention to establish good customer relationships in order to retain and attract interested customers.

Laura and Doug Zander: In August 2013, they had to stop taking paychecks.

Meanwhile, Zander also aimed to do “more with less”, allowing her to focus on specific aspects of the business to create a competitive advantage instead of “doing less with more” which would force her to examine a wide variety of sectors but dedicate less time and attention to each. Ultimately, producing more and expanding at exponential rates may become difficult for the small business to manage, which is what the Zanders faced in 2013. While it may seem beneficial to always think big, it proved to be the opposite for Jimmy Beans Wool. As Zander begin to expand her markets, directing her attention to other products such as fabric, she experienced sliding sales, and suddenly, the company was producing more than it can manage and sell. However, Zander’s prompt reaction to the issue continues to contribute to the business’s success. Upon staggering sales, she met with consultants to re-identify their fundamental values including value proposition and devised new strategies, such as opening up new stores or continuing building the brand online, to generate streams of revenue.

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Read more: Case study on Jimmy Beans Wool