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By Micah McCartney
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China could be facing its longest deflationary cycle since the 1960s, it has been warned, as policymakers pin their hopes on the rollout of measures aimed at stimulating the world's second-largest economy.
Newsweek has reached out to China's National Bureau of Statistics with an emailed request for comment.
Why It Matters
China has struggled to stabilize its economy since the end of President Xi Jinping's strict "zero-Covid" pandemic-era lockdowns, buffeted by headwinds such as a depressed housing market, a sector that accounts for as much as 70 percent of household wealth. Meanwhile, low wages and economic uncertainty have kept consumers cautious, further dragging on prices.
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While China's statistics bureau reported the country had hit its target gross domestic product (GDP) growth on the back of a stronger-than-expected fourth quarter performance Friday, analysts point out deflation—which in 2024 continued for a second consecutive year— continues to present a long-term threat to recovery.
What To Know
The median forecast of a Bloomberg poll of 15 analysts estimated the GDP deflator, a broad metric of price changes in an economy, would hit 0.2 percent this year.
The GDP deflator, which measures the change in price levels by comparing nominal (inflation-adjusted) GDP to real (constant price) GDP, will reach -0.2 percent this year, compared to the average 3.4 percent annual rise in prices during the decade before the pandemic.
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The statistics bureau reported a 0.2 percent increase in the consumer price index (CPI) for 2024. The uptick indicates some progress in lifting prices, but falls well short of the inflation levels Beijing seeks to revitalize domestic demand and economic momentum.
JP Morgan Chase & Co. and other Wall Street lenders cited by Bloomberg predict the deflationary cycle will continue this year, marking the longest such stretch since the Great Leap Forward era under Chinese Communist leader Mao Zedong, whose policies caused a famine that killed tens of millions.
The country hit its GDP target of around 5 percent last year, with better than expected 5.4 percent expansion in the fourth quarter. However, many economists—including China's former No. 2 Li Keqiang—have cast doubt on China's official growth figures, a sensitive topic for Xi Jinping and one that has landed some top economists in hot water.
What People Are Saying
Frederic Neumann, chief Asia economist at HSBC Holdings Plc in Hong Kong, told Bloomberg: "Stimulus, stimulus, stimulus, particularly on the fiscal side, is very much needed in China. We've seen in other economies a big policy push is needed to permanently get out of disinflation. And that's something we think will gradually happen in China, but very gradually indeed."
Disinflation is a decrease in the inflation rate.
Kang Yi, director of China's National Bureau of Statistics, said: "There have been positive changes in the price situation. Market demand is picking up, leading to a rebound in prices. From the perspective of consumer prices, the CPI (consumer price index) rose in the fourth quarter, mainly due to the downward impact of food prices, more reflective of the relationship between supply and demand, the core CPI rose for three consecutive months."
What Happens Next
The move comes just ahead of the Lunar New Year, a time when many Chinese consumers splash out on gifts for family members, as well as travel to visit their hometowns or to vacation spots across China and beyond.
Chinese leaders hope the $1.4 trillion stimulus package announced in September will help put the economy back on firmer ground this year, and Xi has called for additional proactive measures going forward.
Update 1/17/24, 7:20 a.m. ET: This article has been updated with additional information.
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