Prices & purchasing power — China · Synthesis

Near-zero inflation. Consumer inflation stood at around 0.2% in 2024 (NBS), a very low level, close to deflation — the opposite of the Western inflationary shock. Producer prices, meanwhile, have been falling for several quarters.

A deflation risk. The weakness of prices reflects depressed domestic demand (household distrust, precautionary saving), the real-estate crisis (see the Economy and Housing categories) and industrial overcapacity in several sectors. Deflation, by increasing the real burden of debt, is a major economic risk.

The contrast with the West. While wealthy countries were emerging from an inflationary peak, China faces the inverse challenge: reviving demand and avoiding a deflationary spiral — a major divergence of cycles.

Purchasing power and consumption. The weakness of consumption, despite rising incomes over previous decades, is at the heart of the problem: households save and consume little, in the absence of a sufficient social safety net and in a climate of uncertainty.

Overcapacity and trade tensions. Industrial overcapacity (steel, solar, electric vehicles) drives exports at low prices, feeding trade tensions with the West (tariffs) — an international effect of domestic deflation.

Avoiding the deflationary spiral. Reviving domestic demand (consumption, confidence) to avoid lasting deflation is the central challenge, which requires support measures and a strengthening of the social safety net.

Absorbing overcapacity. Reducing industrial overcapacity is necessary to stabilize producer prices and ease trade tensions.

Real-estate crisis. Stabilizing the real-estate sector (see the Housing category) is crucial for household confidence and consumption.

Monetary policy. The People's Bank of China's room to support the economy is constrained by the defence of the yuan and financial risk — a delicate balance.

The open questions. Three challenges will shape the period: (1) avoiding deflation by reviving demand; (2) absorbing overcapacity; (3) stabilizing real estate to restore confidence.

Placed in its environment, China is experiencing a price trajectory opposite to the West: a deflation risk, where others were emerging from an inflationary peak.

Three takeaways. (1) Inflation: the lowest. At ≈ 0.2%, China's 2024 inflation is far below that of the United States (≈ 2.9%), the EU (≈ 2.6%) and even Japan (≈ 2.7%).

(2) An inverse challenge. Like Japan's 'lost decades', China must fight deflation and weak demand, not inflation — a singular case among major economies.

(3) Data to be handled with caution. Chinese price indices are not independently verifiable; the deflationary trend is nevertheless widely documented by external sources.