**Macroeconomic situation:**

China is facing a prolonged deflationary situation from mid-2024 until now, with the Consumer Price Index (CPI) continuously negative, recording -0.1% in May 2025. This reflects a severe weakening of domestic demand, pushing the economy into a "deflation trap." Consumer sentiment is cautious, combined with declining asset values, exacerbating the situation.

**Real estate market:**

- **Significant decline in housing prices:** 3 out of 4 major cities like Beijing, Shenzhen, and Guangzhou have witnessed significant drops in housing prices in 2024 and early 2025. Beijing decreased by -5% year-on-year (YoY), while Shenzhen at one point dropped by nearly -10%.

- **Monthly trends:** Since mid-2023, housing prices have hardly recorded any increases, indicating that the real estate market is in a clear deflationary phase.

- **Impact:** Real estate is the cornerstone of asset holdings for Chinese households. The plummeting housing prices have shrunk the net worth of individuals, reducing confidence and spending, thereby contributing to increased deflationary pressure.

**Monetary policy and exchange rates:**

- The Chinese government maintains a loose monetary policy and is likely to continue in the near future. However, these measures have not been able to stimulate domestic consumption.

- The exchange rate of the Chinese Yuan (CNY) continues to weaken against the USD, creating an advantage for cheap exports. However, this reduces the attractiveness of holding CNY, making domestic investors hesitant to accumulate cash.

**Cash flow challenges:**

- With real estate prices declining and an excess supply, investors no longer see this as an attractive channel. At the same time, the depreciation of the CNY makes cash reserves risky.

- The big question arises: Where will domestic investors' cash flow go when both real estate and CNY are no longer safe options?

**Conclusion:**

China is facing a deflationary spiral, where the real estate crisis and weak domestic demand play a central role. Despite loose monetary policy, the economy still lacks bright spots. Domestic investors are facing significant challenges in finding a safe haven for cash flow, raising questions about the future direction of the world's second-largest economy.