China’s Deepening Deflation Reveals Structural Issues: Analysts

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China’s economy will continue to struggle without structural changes, analysts say amid China’s deepening deflation, slowdown in manufacturing, and slowing international trade.

To rescue China’s economy, the regime will have to spur market vitality and rebuild confidence in the system, U.S.-based economist Davy Wong told The Epoch Times.

China affairs commentator Wang He told The Epoch Times that increased investments in manufacturing despite overcapacity show that the Chinese Communist Party (CCP) is prioritizing its political goals over a healthy economy.

Meanwhile, China’s General Administration of Customs said the dollar value of exports in May increased by 4.8 percent year on year, compared to around 8 percent in April. Exports to the United States plunged by more than a third year on year. Total imports in May fell by 3.4 percent year on year.

According to Wong, the slowdown in export growth and the decline in imports indicate that the Chinese economy is facing weak demand from both international trade partners and domestic consumers.

Besides the shrinking number of export orders, “businesses and consumers are both pessimistic about the future, and they are not willing to expand or spend,” he said.

However, in early June, a number of Chinese provinces paused or imposed limitations on the issuance of these subsidies, citing reasons including system upgrades. According to state media Xinhua, the policy will remain in effect until the end of the year.

The Epoch Times spoke to a number of Chinese residents, who used pseudonyms to protect their identities because of safety concerns and fear of retaliation from authorities.

Ms. Yang from Henan Province said she is shopping on online secondhand markets.

“China’s economy is not doing well right now, and some second-hand markets are very popular,” Yang said, adding that she has bought many secondhand products, including a washing machine, a mini fridge, and a mobile phone.

Li Qiang from Anhui said people don’t have money to spend, even with the subsidies.

“Policies keep changing, but people have to be frugal,” he said.

Referring to the 618 shopping day, a shopping festival around June 18 created by e-commerce giant JD.com, he said: “Some young people would spend regardless whether they have money or not. They’d take loans. For those from more well-to-do families, their parents pay off their debts. One of my neighbours, a young couple, had to use their home to pay off the debt.”

Sun Kuo-hsiang, professor of international affairs and business at Nanhua University in Taiwan, told The Epoch Times that if the contraction continues, it could increase unemployment and dampen consumer confidence, which would create a vicious cycle of economic decline.

Compared to China’s official PMI index, Caixin’s sample consists of medium and small private businesses that are more sensitive to market shocks than large state-owned corporations.

“Medium and small businesses are the weakest link in China’s economy,” Sun said.

Wong said the decline of smaller manufacturers indicates collapsing resilience in Chinese manufacturing, as these businesses directly impact local employment and the lower-income population.

In recent years, economies including the United States and the European Union have increasingly imposed additional tariffs on Chinese goods, citing unfair trade practices such as forced technology transfer, state-sponsored cyberattacks stealing trade secrets, and state subsidies for manufacturers in China.

The subsidies and other preferential policies have made China’s competitor countries dependent on Chinese manufacturing, and the economic policy is to bring about the regime’s wish for global dominance of its Chinese socialist system of governance, Wang said.