China's economy on the height of a deflationary spiral of death

China slides deeper into economic weakness, which is worsened by its reaction to external shocks.

Tariffs dry the international demand for Chinese goods and to maintain factories alive, Beijing asks the exporters to turn inwards. However, this pivot point puts together the problem that it should solve.

The Chinese authorities have positioned the domestic market as a pressure released for the processing industry. The influx of the inventory of export degrees, however, creates at home in a consumer environment that is already very reserved.

This accelerates a destructive process: prices decrease and not because productivity increases or the technology improves. They fall because companies absolutely want to change and survive the shares.

Deflation is no longer an abstract threat in China – it is visible throughout the economy. After the consumer prices were barely over zero for a large part of 2023 and 2024, they dropped for two months in a row.

The producer prices fell in 29 consecutive months. The figures from March showed the sharpest decline in four months, and forecasts indicate an even steeper decline in April.

The problem is a lack of self -confidence, and the mismatch between oversupply and lukewarm demand is increasingly anchored.

The detour of non -sold exports to domestic platforms with steep discounts can appear wisely at short notice. But if this becomes a strategy, it becomes liability. It breaks the price performance across the sectors, weakens the result and places the stage for another round of cost cuts.

Large e-commerce platforms are fully behind this shift. JD.com has committed the equivalent of $ 28 billion for the increase in domestic sales of export surplus goods and granted discounts of up to 55%. The public message is a resilience and opportunities, but the underlying dynamic is more fragile.

The workplace market remains under pressure, whereby wage growth is uneven. Consumers are cautious, not only through big-ticket objects, but also on daily expenses. The real estate sector is still burdened and drags the wealth of household and appetite. Even if the goods are stacked and prices fall, buyers do not violate violence.

This means that companies reduce prices to level that damage profitability. The Impact Cascades: lower edges, closer setting plans, smaller salary packages. These results are not theoretical – you will already appear in China's data. Companies work defensively, households are holding back and the loop tightened.

The exporters already had major changes in the global trade patterns. Customs that are once seen as short-term tactics become a semi-permanent feature of the economic landscape. This has interrupted many years of supply relationships and caused many producers to suspend programs as a whole.

When overseas, China's political reaction has turned to the internal absorption. The risk is that this domestic diversion goes too far, saturated the market and sends deeper deflation waves throughout the economy.

In this context, Beijing's measured approach to stimulus has consequences. Support was spoken, but only a few sensible steps. The authorities seem to keep the fire until they see more deterioration.

This caution can prove to be expensive. The price, which lasts over time, does not simply decrease correctly – they behave the behavior. Companies scale back. Households delay the expenses. Investment decisions drift. Swing slips away.

China is not only in economic challenges, but its size and centrality in global supply chains make its domestic political decisions a global concern.

If the prices in China continue to fall through important inputs and finished goods, this dynamic will export pressure to other economies. It will increase competitive tensions for trading partners. For investors, it woors visibility and undermines the forecasts.

There does not seem to be a contamination mechanism here, which means that these developments can exceed across borders. Nevertheless, the story has not yet been locked up. Although China's reaction was slow, it is not static. The ability to provide targeted relief.

What counts now is the willingness to use it with precision. Sustainable growth does not require a broad flood of capital – it requires decisions that deal with the Pinch points: fragility of employment, requirement of fatigue and collapsing margins.

This means supporting the trust of the private sector and not only enacting high -ranking guidelines. This means the restoration of price stability without accepting longer discounts than new normality.

Above all, this means that the redesign of an export -oriented model is more than just redirected trading. It requires a real re -calibration of internal motors for domestic demand.

What is now unfolding is the early phase of an economic transition that carries a considerable risk, but the instruments for administration are available. But will Beijing use you before the deflation has rooted too deeply?