The news: China’s deflation shows no signs of going away. The consumer price index (CPI) fell 0.4% YoY in August, more than expected, as the country struggles through its third straight year of slumping prices.

The problem: China’s economy is struggling with the twin pressures of weak consumer demand and excess manufacturing output, leading to inventory gluts and fierce price wars that have pummeled companies’ profits.

While Beijing has promised action on both fronts—with more consumer subsidies and a crackdown on “involution”—most of those measures are yet to materialize, raising questions about the country’s ability to manage a prolonged trade war with the US. That means for now, competition continues unabated.

• Ikea said it would spend €20 million ($21.6 million) to lower furniture prices in China; that’s on top of the €80 million ($86.6 million) it already set aside to stay competitive in one of its top markets.
• Alibaba announced RMB 1 billion ($140 million) in subsidies for its Amap navigation service to spur spending on car rides and dining—a move that is likely to trigger similar initiatives from JD.com and Meituan in their battle to control China’s food delivery market.

Our take: With US trade talks yet to yield definitive results, Beijing will have to move from lip service to direct action on the country’s economic problems. But in the meantime, retailers must gird themselves for drawn-out, costly price wars—and make sure they stay attuned to the changing needs, preferences, and desires of Chinese consumers.

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