Greetings, dear viewers. This article explores economic extremes by examining China, which is experiencing a deflationary spiral—prices for goods and services are falling for the third consecutive year.
While many believe falling prices are good for consumers, deflation actually carries severe economic risks. The core problem is that consumers delay major purchases, expecting even lower prices in the future. This dampens demand, forcing companies to lower prices further, reduce expenses and staff, leading to wage cuts. The drop in population income causes consumption to fall further, reinforcing the deflationary loop.
Deflation also makes servicing debts harder: obligations remain while business revenues decline. This fuels the rise of 'zombie companies' that struggle to pay even loan interest. According to Bloomberg research, from 2023 to 2025, prices fell for 51 out of 67 key products in China, with property, industrial goods, and food becoming much cheaper. Official statistics do not reflect the scale of the problem: many data points are unpublished, and the methodology remains opaque.
A broader indicator—GDP deflator—has fallen for 10 consecutive quarters, especially in industry. Examples: polysilicon has become five times cheaper, steel rebar prices are at their lowest in eight years. Many companies are incurring losses, cutting investments in development and research, and laying off workers en masse. Nearly a third of companies reduced jobs, and half reported wage reductions.
International brands are also facing declining sales in China: Apple, Volkswagen, Honda, luxury and cosmetics groups report falling demand. Households are saving at record levels, with personal savings exceeding 110% of China’s GDP—the highest in history, a sign of low consumer confidence.
The government is attempting to address deflation but refrains from large-scale financial support for households. Most experts do not expect quick changes—the problems in industry and consumer spending persist. IMF forecasts inflation near zero for 2025. Continued deflation risks years of stagnation for the world’s second largest economy.
China's deflation is already affecting global markets: cheap Chinese exports drive prices down in other countries, threatening global economic stability.
