ChinaEconomy

China is sinking further into deflation, and this has become an issue that extends beyond its own borders. Prices have been decreasing for six consecutive quarters. If this continues for one more quarter, China will equal the dismal record set during the Asian Financial Crisis in the 1990s.

It's not that the Chinese government is being inactive. Policy makers are making attempts to address the situation, yet their efforts don't seem to be having a lasting impact. And with Donald Trump preparing to return to the White House and vowing to impose a 60% tariff on Chinese exports, the situation is likely to deteriorate.

So, what exactly is deflation? Essentially, it occurs when prices in general don't just increase slowly or remain static but actually decline. This is not a case of milder inflation; it's a significant economic downturn where falling prices cause consumers to hold onto their cash rather than spend.

## Why China's Deflation Seems Uncontrollable
Unlike in the United States, where people were eager to spend after the lifting of COVID-19 restrictions, Chinese consumers have remained cautious. The reason for this is the real estate crash in China, which has had a far-reaching impact. It has affected not only homebuyers but has also shaken the confidence of the general public.

Big-ticket purchases are out of the question. Consumers are saving their money, anticipating further price drops. However, the real estate issue is not the sole factor pushing China into deflation. The government has imposed restrictions on high-paying industries such as technology and finance.

This led to layoffs and salary reductions, which in turn caused people to cut back on their spending. Additionally, China's focus on increasing manufacturing and advanced technology has resulted in an oversupply of goods that few people want to buy. Businesses have been forced to reduce prices.

The problem is that falling prices do not benefit the economy. When people expect prices to keep falling, they refrain from making purchases. As a result, businesses earn less, leading to more layoffs and even deeper price cuts.

Bloomberg economists refer to this as "debt deflation," where inflation-adjusted interest rates rise, making it more difficult to pay off debt. It's a vicious cycle that can only be broken with strong intervention.

The Chinese government is aware of this but has been unusually cautious. After the pandemic, China did not revert to its previous strategy of large-scale infrastructure projects and a housing boom.

President Xi Jinping is now emphasizing advanced technology and sustainable growth. While this sounds good in theory, it means there is no significant injection of funds to turn the situation around.

## Does China Have a Plan?
The People's Bank of China has made several attempts to cut interest rates over the past two years, with the aim of getting people to spend again. However, this has not been successful. Real estate restrictions have been relaxed, down payments have been reduced, and mortgage rates have been lowered in an effort to revive the housing market. But none of these measures have halted the downward spiral.

Banks have been instructed to provide more loans to developers so that they can complete stalled projects. Local governments have even been asked to purchase unsold apartments and convert them into public housing. At the same time, the central government has initiated a $1.4 trillion program to assist local governments in managing their debt.

Furthermore, China has provided subsidies for cars and home appliances. Low-income families and students have also received some assistance. Nevertheless, economists are not convinced that these measures are sufficient. The housing market remains in a chaotic state, and consumer confidence is extremely low.

## The Numbers Speak Volumes
China uses three main indicators to measure deflation. First, the consumer price index (CPI), which monitors household spending, reached a five-month low in November. Then there is the producer price index (PPI), which measures industrial prices and has been declining for over two years.

Finally, there is the GDP deflator, which assesses price changes across the entire economy, and it is also showing a negative trend.

## The Products Driving Prices Down
Transportation is currently one of the major factors contributing to the decline in consumer prices. Car prices are falling, and even gas prices have dropped. Carmakers such as BYD are in a state of panic and are asking suppliers to cut costs to remain competitive. This has led to a full-blown price war in the Chinese auto market.

Real estate is another significant problem. The housing market is burdened with a large number of unsold apartments, and there is no easy solution. Manufacturing is also in a poor state. China's push for increased production has created an oversupply of goods that are not in demand. It's a simple matter of supply and demand, where supply is overwhelming and is harming the economy.

Then there is the highly anticipated trade war with America. Trump has threatened to impose an additional 10% tariff on all Chinese imports as soon as he takes office next month. If these tariffs are implemented, China's export growth, which is one of its few areas of strength, will be severely affected.

Those who hold Chinese equities are suffering as corporate earnings decline. Luxury carmakers and high-end brands that rely on wealthy Chinese consumers are also experiencing a significant drop in sales.

On the other hand, China's bond market is performing well. Low-risk government bonds are attracting investors who anticipate further rate cuts by the People's Bank of China. However, this is not a positive sign. The overall economic outlook is gloomy, and the bond market boom is merely a symptom of the larger problem.
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🗞️ Representantes dos Estados Unidos e da China se reunirão, em Genebra, para iniciar um possível processo de distensão nas relações comerciais entre os dois países. O encontro reunirá o secretário do Tesouro dos EUA, Scott Bessent, e o principal negociador comercial americano, Jamieson Greer, com o czar econômico da China, He Lifeng.
A reunião, confirmada por ambos os lados, ocorre após semanas de escalada tarifária que levaram as alíquotas sobre certos produtos a ultrapassar 100%, situação que Bessent comparou a um verdadeiro embargo comercial. A tensão gerou forte impacto nas cadeias globais de suprimento e aumentou os temores de desaceleração econômica.
Segundo fontes ligadas às negociações, a pauta deve incluir a redução de tarifas, revisão de controles de exportação e o fim de isenções em importações de baixo valor. Para Bessent, o objetivo imediato é reduzir as tensões: “Antes de avançar, precisamos desescalar”.
O Ministério do Comércio chinês confirmou o encontro, afirmando que a decisão de retomar o diálogo leva em conta os interesses globais, os da própria China e os apelos de consumidores e empresas dos EUA.

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China's economy has sent a strong signal to the world. While Donald Trump ramps up trade pressure, Chinese exports in June soared by 5.8% year-over-year, exceeding analyst expectations and proving that Beijing has found new ways to grow—without relying on the American market. It’s clear that redirecting trade is working.
📦 Imports also rose for the first time this year, up by 1.1%. Although the increase isn’t huge, it marks a vital turnaround after months of decline. Domestic demand remains weak, but China maintains stability within the global supply chain.

🌍 America Out, Europe and Asia In
While exports to the U.S. fell for the third consecutive month—this time by 16.1%—China saw sharp increases elsewhere:
🔹 Southeast Asia: +16.8%

🔹 European Union: +7.6%
Meanwhile, imports from these regions remained mostly flat, creating a powerful trade surplus. In the first half of 2025 alone, Chinese exports rose by 5.9%, while imports dropped by 3.9%, resulting in a surplus of $586 billion, nearly 35% higher than last year.

💥 Explosive Growth in Rare Earth and Tech Exports
Rare earth exports—critical for electronics and defense—surged by 60.3% to 7,742 tons. Steel exports rose by over 10%, integrated circuits by 25.5%, cars by 27.4%, and ships by 11.9%. Clearly, China’s technological and industrial dominance isn’t fading—it’s accelerating.
Trump responded with more tariff threats, including a 40% tariff on Vietnamese goods, accusing Vietnam of acting as a backdoor for Chinese products. He also proposed a 10% tariff on imports from BRICS-aligned countries, potentially dragging more governments into the trade war.

🔥 Coal Drops, But Oil and Soy Rise
While energy demand remains tied to weather and a weak real estate sector, oil imports rose by 7.4% and soy products by 10.4%. In contrast, coal imports fell to their lowest level since February 2023 as China focused on domestic production, which is on track to grow for the seventh straight year.

⚖️ The Bottom Line: Beijing Is Playing the Long Game
As Trump escalates his trade offensive, China is patiently redrawing its global ties. The sharp rise in exports to Europe and Asia, the growth in strategic tech and resources, and a record trade surplus all show that China’s factory engine is running full speed—despite U.S. tariffs. The question now is: how long can this redirected trade model withstand the next wave of global sanctions?

#ChinaEconomy , #TradeWars , #TRUMP , #Tariffs , #GlobalMarkets

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