How price wars on online shopping websites may be hurting China and its economy

The New York Times reports that Lin Yunyun, a 28-year-old seller on China's fast-growing e-commerce platform Pinduoduo, has experienced the relentless pressure to lower prices firsthand. Unlike what she expected, Pinduoduo constantly sends "reminders" whenever other sellers undercut her on diaper prices. Even after reducing her prices, the platform pushes for further cuts to maintain her product's visibility.
Pinduoduo exemplifies China's current struggle with deflation.Consumers, rattled by a sluggish economy and a seemingly endless real estate crisis, are reportedly tightening their belts. This spending slowdown has triggered falling prices and shrinking profits, creating a vicious cycle. While the government scrambles for solutions, Pinduoduo thrives on this environment.

Pinduoduo has become the go-to destination for value-conscious shoppers in China, embracing a trend called "downgraded spending." It's no surprise then, that with over 60% of Chinese consumers shopping online, Pinduoduo's aggressive pricing strategy, mirrored by competitors, has significantly contributed to the deflationary spiral.

The NYT report captures the dilemma of Chinese journalist, Zhang Zhuo, who wrote in her reportedly censored WeChat post, "The Better Pinduoduo Is, the Worse the Times Are." She argued that Pinduoduo conditions consumers to prioritize the cheapest option over brand loyalty.
"Merchants have two choices: lower prices or lose sales," Zhang wrote.
While some shoppers, like office worker Gao Ning, appreciate the convenience and value Pinduoduo offers, it comes at a cost. The platform's relentless price wars may be a convenient way to buy groceries and household goods, but they also reflect a deeper economic anxiety in China.