China’s Car Prices: Big Discounts Spell Deflation

China's move, which the central bank described as a "one-off depreciation" based on a new way of managing the exchange rate that better reflected market forces, triggered the yuan's biggest fall since 1994... (Reuters, Aug. 11)

Many observers see the devaluation as an indication of weakness in the world's second largest economy.

"I think it's screaming that China is in trouble.... The Chinese leadership is really starting to run scared," said [a] managing director of foreign exchange strategy. (CNBC, Aug. 11)

China's economic slowdown is reflected in the nation's automobile sector. Steep price discounts have prompted potential car buyers to wait for even lower prices. This spells deflation.

Read this excerpt from an Aug. 9 Bloomberg article:

Bill Shen wants to upgrade his 8-year-old Citroen to something fancier, maybe an Audi or a BMW. But the Shanghai resident is in no hurry. Cars keep getting cheaper.
Facing the slowest growth in new car sales in four years, dealerships in China have chipped away at retail prices in the past several months. Now discounts of at least 30 percent are being offered in major cities on hundreds of models. Audi's top-of-the-range A8L luxury sedan, originally listed for 1.97 million yuan ($317,000), is now going for 1.28 million yuan, according to Autohome, a popular car-pricing portal....
"Prices are getting lower all the time, even as cars are getting better," said Shen, 37, who works for an auto parts company. "If it's not urgent, one can wait."
"This round of price cuts is the worst in China's auto industry history in terms of the number of models involved and the depth of the cuts," said Su Hui, a deputy division head at the state-backed China Automobile Dealers Association and a 26-year veteran of the trade. "Nobody saw it coming, not the government, not the automakers, not the dealers."

You can read the entire article by following the link below: