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China Deflation Battle Stands Out From Countries Trying to Tame Inflation 

Published March 8, 2024 4:05 PM
Shraddha Sharma
Published March 8, 2024 4:05 PM
By Shraddha Sharma
Verified by Peter Henn

Key Takeaways

  • China experiences unique deflation amid a global trend of inflation.
  • Europe and the UK show signs of easing inflation, with potential interest rate cuts later this year.
  • The US sees a slight decrease in inflation, supporting expectations for future rate reductions.
  • China’s real estate crisis and economic strategies starkly contrast with its global peers.

While most countries are wrestling with the challenges of inflation, China’s situation stands apart. In the early months of 2024, China remains the only major economy grappling with deflation, news reports  highlight.

China faces a scenario where general price levels are falling. The situation is largely attributed to an ongoing real estate crisis and a broader economic slowdown, leading to a lack of demand.

China’s Unique Deflationary Pressure

Business Insider reported that China has experienced a continuous four-month decrease in consumer prices, culminating in a year-on-year reduction of 0.8% in January. The fall marked the most significant decline in fifteen years. The economic state is primarily attributed to a severe crisis in the real estate sector, leading to a decrease in consumer demand.

And China’s recent announcement of a 5% growth target doesn’t do much to elevate the real estate market, according to analysts.

With China’s deflationary challenges, its approach to stimulating the economy focuses on sectors outside of real estate. Recent announcements reveal plans to invest over a billion dollars into manufacturing and domestic technology to maintain global competitiveness. Since China’s clampdown on the real estate market in 2020, the high-leverage sector crumbled. Now, according to reports by ET Realty, Evergrande’s liquidators have pulled in at least three new legal firms. And the situation could evolve from here.

Global Inflation Trends

In contrast, other regions like Europe, the UK, and the US are fighting inflationary pressures. The European Central Bank has hinted at interest rate cuts not being likely until June, following a reduction in inflation forecasts. The UK reports a slight easing in wage growth expectations, a positive sign that could support interest rate cuts later in the year. Meanwhile, the US has seen inflation ease to 2.4%, aligning with predictions and reinforcing expectations of rate cuts.

On March 8, US non-farm data once again beat expectations in February. While the strong 275,000 addition beat expectations, the wage growth is soft. The figures could pull an interest rate cut timelines closer than earlier.

What is Next?

China’s battle with deflation in a global setup where inflation is the key economic challenge. While other major economies are gradually moving towards easing inflationary pressures, China’s focus remains on reviving demand amid a real estate downturn.

As China invests in manufacturing and tech to remain competitive, the resolution of its real estate crisis remains a critical factor for its economy.

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