SHANGHAI, June 11 Reuters An aggressive market grab by lowcost Chinese retailers has delivered bumper earnings for some firms but has also intensified a bruising price war, exacerbating deflationary fears in the world39;s secondlargest economy.

From coffee to cars to clothes, China39;s discount retailers have cut prices on just about everything as they chase a consumer whose confidence has been battered by a property crisis, high unemployment and a gloomy economic outlook.

While the retail downshift has propelled revenues for firms like discount ecommerce platform Pinduoduo against larger rivals such as Alibaba, economists fear their success is entrenching a Japanesestyle deflationary mindset in the consumer that will be difficult to shake.

As retailers compete on price above all else, they force tough cost cuts onto their suppliers, squeezing profit margins. This in turn leads to lower wage growth or higher dependency on lowpaid gig work, hurting household demand.

If this situation continues, China may end up with what we call a vicious cycle lower value added consumption, deflation, low profit rates leading to low wages, which further pushes consumers to downgrade their consumption, said HeLing Shi, an economics professor at Monash University in Melbourne.

In the most recent earnings season, revenues for lowcost firms beat market expectations and outpaced their competitors.

Revenues of PDD Holdings, which owns Pinduoduo, surged 131 while China39;s leading food…