How E-Commerce Is Making China’s Deflation Worse

When Lin Yunyun started selling diapers two years ago on Pinduoduo, China’s fast-growing e-commerce site, she was not prepared for the relentless nagging about prices.

Pinduoduo, popular among Chinese consumers for its discounts, sent “reminders” whenever other sellers dropped their prices below hers. When Ms. Lin cut her prices, the site would temporarily promote her products — only to warn her a few days later that more reductions were needed for the site to continue driving customers to her goods.

“The platform keeps reminding me to lower prices,” said Ms. Lin, 28, who lives in Zhangzhou, a city in southeastern China. “If I cut my price any more, I won’t make any money.”

No company embodies China’s deflationary moment quite like Pinduoduo. Shoppers flock to the app for its staggering discounts, the result of its unyielding push to lower prices. As the country’s second-largest online retailer, it is the shopping destination of choice for those who embrace so-called downgraded spending — a social-media fueled maxim of Chinese consumers’ penny-pinching ways.

Rattled by a real estate crisis with no end in sight and a faltering labor market, Chinese consumers are spending less and saving more. Prices are falling, and profits are shrinking. Companies are hesitant to hire more workers or invest in the future, fueling even more concerns about the economy.