Why China is struggling to escape a cycle of deflation

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China’s spiral is finding it difficult to eliminate. According to Bloomberg reports, overall prices in the world’s second largest economy have dropped to two straight years, and if they fall back in 2025-as many analysts are predicting-it will be the longest distance for the country since the 1960s.

In January and February this year, consumer prices became negative for the first time in four years. Basic inflation – which does not exclude volatility such as food and energy – decreased by 0.1 % in February, which is only another contraction in more than 15 years.

Chinese policy makers have promised to do more to pursue economic growth and reduce prices. He has used some of his direct language on financial and financial stimulus for years as China fights a new trade war with the United States on the back of President Donald Trump’s return to the White House. It has already reduced the increase in exports and weighs in the business.

What is defense?

The term describes a situation in which the economy has a permanent decline in the cost of goods and services. It is not confused with disinfection, which indicates that prices are still rising, not just so fast. The latter is what is happening in the United States, where the annual price increase has decreased significantly since the mid -2022.

Why is China facing defense?

Prices were switched in the United States and other major economies when they reopened after the Covade 19 pandemic diseases, as the demand for paint is met with shortage of supply of goods. The predictions that would be the same in China proved to be wrong. Consumer spending power is weak and property deprivation has denied confidence, which causes people to refrain from buying big tickets.

High -paying industries such as technology and finance have reduced the rules and salaries due to tightening the rules, which has further reduced the appetite for costs. A policy for the development of manufacturing and high -tech equipment has increased the production louder, but the demand for these goods has weakened, forcing the business to reduce its prices.

What is bad in falling prices?

First of all, cheap prices may look good for consumers, but that does not necessarily mean that people will start spending again. In fact, they can stop buying expensive items in the hope that prices will fall further.

Delaying consumption will further depressing economic activity, eliminating business profits, reducing employment and investment, and pressing revenue. This may result in another decline in costs and prices in the spiral below the bottom.

Defitions can also increase the level of interest rates, “real”, or inflation in the economy. Loan debt ligher makes it difficult for businesses to invest, which in turn demands, which produces more utility. Some economists believe that such “debt utility” can stimulate recession because people default on their debts and disrupt banks.

Why is it difficult to fix China’s utility?

Beijing responded to the past, with financial softening and major financial stimulation measures. But since the epidemic disease, the government has more carefully approached the stimulus, and has been cautious to pay too much debt to the economy.

Policy makers are reluctant to go back to the old playbook of infrastructure and faster property engineering. President Xi Jinping is determined to move the economy to new growth drivers, such as modern technologies.

As a result, stimulation measures have been relatively prevented, and investors are somewhat frustrated about the economic approach. In a symbol of sadness, the production of 10 -year -old official bonds decreased earlier this year before recovering.

What has China done about its utility, and what was the effect?

The People’s Bank of China has reduced interest rates several times in the past two years to reduce loan costs and increase demand in the past two years. Officials are trying to divert the property market by reducing the mortgage rates as well as reducing the doorstep for purchase restrictions.

The banks were asked to increase the credit to the developers so that they could eliminate the plans, and local governments were requested to buy the selling apartments and convert them to public housing. Although policy makers have avoided giving cash to consumers, they have subsidized cars and household equipment purchases, and extended relief to low -income families and students.

An extensive stimulus plan launched in the late September 2024 included a $ 1.4 trillion program to help local governments deal with their debt. These initiatives have helped improve the economy in recent months, but economists have not seen enough to reject the trend in prices. The housing market is weak and confidence is still low.

The government unveiled a high level of borrowing on record in 2025, with a pressure to add financial stimulus to the widespread deficit economy, up 9.9 % of the total domestic products. But it is still sowed by China in past misery or by the steps taken by other major economies at the time of crisis. For example, the United States increased its budget deficit over 13 % of its GDP over a year in a year.

The Chinese government also reduced its official target for consumer inflation by about 2.0 2.0 % for 2025, the lowest level since 2003. While this goal is widely considered as a roof rather than a bound purpose, the bottom adjustment is an important identity by the officials that there will be a challenge for a rapid price increase.

How does China measure defense?

There are three important gauges. The most referred to is the price index of consumers, which reflects changes in a range of goods and services purchased by homes. It weakened at the lowest level in five months in November.

Producer Price Index measures changes in industrial products sold by manufacturers and has been in contraction for more than two years.

A total domestic product’s defense is calculated using the difference between the growth of GDP, adjusted by the nominal and inflation of the economy. It provides a widespread scale of prices throughout the economy, and is the longest extent in this century.

Which products in China are seeing the biggest price reduction?

Transportation has recently been dragged on consumer prices, mostly from droping in car and gasoline prices. Vehicles, including the BED company, have asked suppliers to reduce prices, which indicates a intense war in China’s auto market.

For the wider economy, the industrial sector, including manufacturing-recorded a deep contraction in prices in 2024, which is based on the Sector Level GDP Defiliter based on Bloomberg. Government support for manufacturing – from cheap loans to favorable tax policies – has increased the supply of goods, which consumers hesitate to buy.

After a nearby reduction in the real estate sector, the permanent bubble of the property has dropped in the housing inventory.

How will Trump’s prices have an impact on China’s utility?

Even after two months after returning to the Oval Office, Trump slapped all Chinese goods imported to the United States at additional rates. China retaliated with target Levies on US products. It is unclear whether Trump will follow his proposal to raise tariffs on China, but trade tensions between the world’s top economies are likely to increase further. There are signs that other countries can follow the protection of the United States. South Korea and Vietnam said in February that they would impose tariffs on Chinese steel imports, while Mexico discussed similar measures with Washington. Together, it has diminished the chances of increasing China’s exports in 2025. Exports have contributed one -third of the country’s economic expansion last year. If manufacturers have to rely on domestic buyers in view of weak international demand, it will be even more difficult to raise prices at home. This may increase the deflationary pressure.

What is the meaning of permanent defense in China for foreign investors?

Investors in Chinese Equity face a decline in defiance in the income of some Chinese companies. Meanwhile, overseas premium cars and luxury brand makers have seen sales crater in China as consumers have tightened their purse wires.