Haidilao International Holding Ltd. (HDALF)

Shift in Chinese retailers' strategy risks entrenching deflation

Price cuts, the proliferation of bargain stores and companies offering cheaper, scaled-down versions of their products may create a vicious cycle of lower profit margins that curtail wage and job growth and further depress consumer appetite. This stands to create more headwinds for China's stuttering post-COVID recovery. Falling income growth is normalizing lower consumption in China, with some industries experiencing declining revenue, as "companies are lowering prices to maintain their market share and avoid being squeezed out," said Wang Dan, a Shanghai-based economist at Hang Seng Bank.