China Economy: Acting Against Inflation Risks and Deflationary Pressures

China's Economic Challenges

China's economy is at a crossroads, faced with rising inflation concerns and the threat of deflation. Haruhiko Kuroda, former governor of the *Bank of Japan*, expressed grave worries during a panel discussion in Shanghai regarding the significant declines in GDP deflator and the producer price index (PPI), suggesting that China must act to prevent a trajectory similar to Japan's past economic woes.

Deflationary Pressures and Policy Responses

Kuroda emphasized the importance of combating wage stagnation, a challenge he faced while steering Japan's economy through turbulent times from 2013 to 2023. He pointed out that China’s current deflation is manageable compared to Japan's earlier crisis, but maintaining wage growth is paramount to alleviating economic pressures.

• China's PPI has declined for 22 consecutive months as of July.
• The consumer price index (CPI) showed weak performance, indicating possible contraction.
• Yi Gang, former governor of the *People's Bank of China*, supports urgent measures to combat deflation.

Boosting Domestic Demand

Despite signs of recovery, domestic consumption has stagnated. Yi highlighted the necessity for stronger fiscal policies and measures to address unemployment, stating, “The key is how to improve domestic demand and tackle the real estate market issues.” With concerns over falling prices, the imperative for action has never been clearer.