China is grappling with a deflationary spiral that is squeezing consumers, businesses, and the broader economy, with signs that the situation is worse than official statistics suggest. Beijing officials describe the trend as “involution,” a cycle of destructive competition fueled by excess capacity. For many citizens, however, the impact is far more personal. Yang Zhifeng, a 24-year-old Shanghai resident, has drifted between low-paid jobs since graduating two years ago and attempted to run a small cocktail stall, only to be forced to close it after food delivery platforms undercut her prices. “I’ve become the kind of consumer who destroys businesses like mine,” she said, illustrating the human cost of a deflationary cycle that Bloomberg analysis found runs deeper than the headline Consumer Price Index indicates.
Bloomberg News examined prices for nearly 70 products and services across 36 major cities in China, drawing from both official and private sources. The analysis revealed that 51 of the 67 tracked items saw price declines over the past two years, ranging from everyday groceries to housing costs. Major price drops hit sectors including consumer goods, cars, red wine, potatoes, beef, and home rents, suggesting that ordinary citizens are facing more intense price reductions than official CPI figures reflect. Economists note that China’s opaque methodology and limited item-level data have likely masked the full extent of deflation, particularly in housing and other essential sectors.
The effects extend beyond consumers. Bloomberg’s analysis of roughly 6,000 publicly traded Chinese companies shows that more than 25 percent reported losses in the first half of 2025 — the highest proportion in at least 25 years. Industrial, real estate, energy, and consumer goods firms are all affected, with thinning margins and widespread price wars cited in company filings. The share of “zombie” firms, whose profits cannot cover debt interest, has climbed from 19 percent to 34 percent in five years, while capital expenditures and R&D spending have fallen for most companies for the first time in a decade. Multinationals such as Apple, Starbucks, Volkswagen, and L’Oréal have also reported declining sales in China, underscoring the global impact of the country’s price slump.
Households are feeling the squeeze as well. Erica Chen, a former tech worker in Beijing, saw her household income fall dramatically after layoffs hit both her and her husband, forcing the family to dismiss nannies and withdraw their child from an international school. Similarly, Guo Fang, a former tech worker in Shanghai, has had to rein in spending on luxury items and travel. Savings rates have risen to an estimated 110 percent of China’s GDP, reflecting widespread caution and expectations of continued price declines.
Deflation in China is not just a domestic problem. Economists warn that cheap Chinese exports can depress prices abroad, affecting global markets and trading partners. The IMF projects consumer inflation in China will average near zero this year, while the Bank of Korea has cautioned that deflation could be exported internationally. Meanwhile, broader measures, including the GDP deflator, indicate that industrial sectors have been in sustained deflation for ten quarters, with raw materials like polysilicon and steel rebar hitting multi-year lows.
Beijing has taken steps to curb excessive competition and price wars, but economists remain skeptical. Logan Wright of the Rhodium Group said the problem is systemic and unlikely to be resolved with short-term policy interventions. The government’s cautious approach reflects a political calculus: authorities are keen to support strategic industries like AI, semiconductors, and green energy while avoiding policies that could spark inflation or disrupt fiscal control.
Experts argue that more aggressive measures may be needed to revive consumption. Zhu Tian, a professor at CEIBS, recommends substantial government stimulus, including household vouchers worth hundreds of billions of dollars, to break the deflationary mindset and restore confidence. Without such interventions, China risks a prolonged period of stagnation, echoing Japan’s decades-long battle with weak prices. “Historically, deflation is extremely rare,” Zhu said. “If prices are down for three years and inflation doesn’t come back, then people will believe it won’t come back. That’s when China becomes Japan.”
