Beijing is grappling with persistent deflationary pressures well into 2025, challenging the effectiveness of extensive policy measures aimed at stabilizing the world's second-largest economy. The Wall Street Journal reported on this ongoing struggle, highlighting that despite a significant policy pivot, the nation continues to face an environment of falling prices. This economic climate is largely driven by subdued domestic demand, a protracted property sector downturn, and cautious consumer spending.
China's consumer price index (CPI) has seen declines, with producer prices also remaining in deflationary territory, reflecting a broader economic slowdown. Experts like Zhiwei Zhang, chief economist at Pinpoint Asset Management, noted that "China continues to face persistent deflationary pressure," citing fierce competition and declining property prices. This deflationary trend, which includes the GDP deflator falling for multiple consecutive quarters, indicates a lack of robust demand across various sectors.
In response, Chinese policymakers have initiated a series of stimulus measures since late 2024, including interest rate cuts, reductions in the reserve requirement ratio (RRR), and significant fiscal injections. These efforts include the issuance of ultra-long special treasury bonds and increased budget deficits, alongside specific initiatives to stabilize the struggling real estate market and boost consumption through programs like trade-in subsidies. Former central bank governor Yi Gang emphasized the need to "focus on fighting the deflationary pressure."
Despite these interventions, the impact on consumer confidence and overall demand has been limited, leading to questions about the policies' effectiveness. Analysts, including Julian Evans-Pritchard of Capital Economics, suggest that much of the fiscal spending remains focused on the supply side rather than directly stimulating consumption. Furthermore, external factors such as escalating trade tensions with the United States continue to weigh on export demand, exacerbating overcapacity and downward price pressures.
The persistent deflation poses a significant challenge to Beijing's economic growth targets, with projections indicating continued pressure throughout 2025. While policymakers aim for around 5% GDP growth, achieving a sustained recovery in inflation remains a key hurdle. The ongoing struggle underscores the complex structural issues within the Chinese economy, necessitating more targeted and broad-based measures to fundamentally rebalance demand and supply and restore long-term confidence.