Source: Reuters · Link
What really caught my attention about this article is how China’s government is intervening to stop falling prices, not rising ones. Normally, we study that governments regulate firms to prevent them from overcharging consumers, but here it’s the opposite — firms are cutting prices too aggressively in industries like electric vehicles and technology. In economics, we learn that there is an efficient price and quantity at which resources are allocated optimally. When prices go above this level, consumers are exploited; but when prices fall artificially below it, that also causes allocative inefficiency and wastes resources.
Right now, Chinese firms are caught in price wars, selling below cost just to outcompete rivals. This may look good for consumers temporarily, but in reality, it’s unsustainable — firms incur losses, workers face instability, and eventually, there’s a sharp rebound in prices once weaker competitors exit. As an economics student, I find it fascinating that government intervention isn’t just about controlling inflation — it can also be about preventing destructive deflation and protecting long-term market efficiency.