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© Reuters. FILE PHOTO: People walk along Nanjing Pedestrian Road, a main shopping area, ahead of the National Day holiday, in Shanghai, China September 26, 2023. REUTERS/Aly Song/File Photo
China’s economy is facing significant challenges as consumer prices fell the fastest in three years in November and factory-gate deflation deepened. The economic recovery is faltering, and rising deflationary pressures are causing concern about weak domestic demand.
Data from the National Bureau of Statistics (NBS) showed that the consumer price index (CPI) dropped 0.5% from a year earlier and compared with October, far deeper than the median forecasts. The year-on-year CPI decline was the steepest since November 2020, adding to recent mixed trade data and manufacturing surveys that have fueled calls for further policy support to prop up growth.
Xu Tianchen, senior economist at the Economist Intelligence Unit, highlighted three main factors contributing to the alarming data. These include falling global energy prices, the diminishing winter travel boom, and a persistent supply glut. As a result, downward pressure is expected to rise in 2024, posing a significant challenge for policymakers.
Bruce Pang, chief economist at Jones Lang Lasalle, warned about persistently sluggish demand, emphasizing the need for China to prioritize sustainable and balanced growth.
Despite the alarming data on consumer prices, China’s central bank Governor Pan Gongsheng expressed optimism about inflation, asserting that it is expected to trend upwards. However, the producer price index (PPI) fell 3.0% year-on-year, marking the 14th straight month of decline and underscoring the challenges facing China’s economy.
With mounting local government debt, a weak housing market, and tepid demand, China is grappling with multiple economic headwinds. Moody’s issued a downgrade warning on China’s credit rating, highlighting the challenges the economy faces. Nevertheless, authorities are working to spur domestic demand and enhance economic recovery in 2024.
Markets are eagerly awaiting more government stimulus at the upcoming “Central Economic Work Conference” to address the challenges facing China’s economy.