A New York Times article Tuesday titled ‘China Reports Falling Prices and Low Demand’ says China consumer prices were 1.6% lower last month than a year earlier, the first decline since December 2002, and that producer prices are falling even faster in China, dragged down by lower prices for oil, other commodities, a glut of factory capacity, and a shortage of demand from exporters and Chinese buyers alike. The article also says China’s National Bureau of Statistics took the unusual step of issuing a statement on Tuesday that denied China faced possible deflation. The China real estate index of 70 cities was led down by a drop of 1.8 percent in new home prices compared with a year ago. Prices of previously owned homes fell 0.7 percent.

A second article published today titled ‘Chinese exports post steep decline in February’ says that in February Chinese global exports dropped 25.7% year/year (the January drop was 17.5% year/year) to U.S.$64.8 billion, a much higher drop than was expected. China’s imports in February also fell, resulting in a trade surplus of U.S.$4.8 billion, down from U.S.$39.1 billion in January.

All that said, I find it hard to believe that China, holding its $2 trillion in U.S. debt and a drop of only 1.8% in real estate prices year/year could be thought to be facing possible deflation, particularly in the context of U.S. ‘recession measurements and declarations’ where many U.S. economists still proclaimed in mid-year 2008 that the U.S. was not then yet in recession.

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