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American Focus > Blog > Economy > China should focus on fighting deflationary pressure
Economy

China should focus on fighting deflationary pressure

Last updated: September 6, 2024 10:05 am
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China should focus on fighting deflationary pressure
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China’s former central bank governor, Yi Gang, emphasized the importance of boosting domestic demand in order to combat deflationary pressures during his speech at the Bund Summit in Shanghai. He highlighted the need for proactive fiscal and accommodative monetary policies to stimulate the economy and restore confidence in society.

Unlike the high inflation rates seen in the U.S. and Europe, China has been grappling with falling consumer prices in recent years. The latest Consumer Price Index (CPI) data is expected to show a slight increase from 0.5% in July to 0.70% in August, indicating a sluggish recovery in domestic demand.

Yi Gang also projected that the consumer price index would return to positive territory by the end of the year, while the producer price index is likely to stabilize around zero after experiencing negative readings. The core CPI, which excludes volatile food and energy prices, saw a modest increase of 0.4% in July.

During his tenure as the head of the People’s Bank of China from 2018 to 2023, Yi Gang played a key role in implementing monetary policies to support economic growth. His successor, Pan Gongsheng, continues to navigate the challenges posed by the real estate market and local government debt issues.

In response to the economic slowdown, Chinese policymakers have introduced measures to boost consumption, including a trade-in policy and support for the real estate sector. However, sales and investments in new properties have declined, posing a challenge for sustaining economic growth.

Contrasting China’s situation with Japan, where prolonged deflation had a lasting impact on wage growth, former Bank of Japan governor Haruhiko Kuroda warned against the dangers of prolonged deflation. He stressed the importance of avoiding a similar scenario in China to prevent stagnation in wage growth.

See also  A Societal Nobel Prize in Economics

In conclusion, China’s policymakers face the daunting task of reviving domestic demand and managing the challenges posed by the real estate market. By implementing proactive fiscal and monetary policies, they aim to stimulate economic growth and restore confidence in the economy.

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