China struggles with weak demand, falling prices

October 15, 2025 (MLN): China’s consumer prices fell again in September, emphasizing the growing challenge Beijing faces in reviving domestic demand while navigating a renewed trade war with the United States.

According to data released Wednesday by the National Bureau of Statistics (NBS), the Consumer Price Index (CPI) a key measure of inflation dropped 0.3% year-on-year in September.

The decline marked a slight improvement from August but was steeper than the 0.2% drop forecast in a Bloomberg survey.

The latest figures highlight persistent weakness in China’s economy, which has been weighed down by a prolonged property market slump, sluggish consumer spending, and high youth unemployment.

Economists warn that while deflation may appear beneficial to consumers in the short term, it can hurt overall growth as households delay purchases in anticipation of even lower prices.

The data comes shortly after the International Monetary Fund (IMF), in its latest World Economic Outlook, pointed to “weakness in domestic demand” as a key concern for China.

The IMF said the world’s second largest economy could benefit from a “rebalancing” through fiscal measures aimed at boosting social spending and stabilizing the property sector steps that could counter rising deflationary pressure.

“China’s inflation stabilization is fragile and volatile,” said Tianzeng Xu, senior analyst at the Economist Intelligence Unit, noting that the property sector remains under strain and labor market conditions are still weak.

Meanwhile, Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, warned that “the return of trade tension and heightened growth uncertainty” were negative for any near term demand recovery.

The Producer Price Index (PPI), which tracks factory gate prices, also fell 2.3% in September matching forecasts and showing a mild improvement from August.

Although trade relations between Washington and Beijing had stabilized earlier this year, recent developments suggest a renewed escalation.

U.S. President Donald Trump warned last week that he would impose an additional 100% tariff on Chinese goods starting November 1, following Beijing’s decision to tighten controls on the export of rare earth technologies and other strategic materials.

In response, China’s Commerce Ministry vowed on Tuesday to “fight to the end” if necessary.

Despite the tensions, some economic indicators offered faint optimism.

Official data earlier this week showed China’s exports to the United States rose 8.6% month-on-month in September, a sign that external demand remains resilient despite the tariff threats.

Top Communist Party leaders are set to gather in Beijing next week for a high-level policy meeting to outline China’s next five-year plan, including strategies for economic recovery and social development.

Analysts believe additional demand side support, such as fiscal stimulus and targeted spending on households, will be critical to sustain growth momentum.

Until such measures are enacted, however, “there is little prospect of a meaningful improvement in China’s deflationary environment in the near term,” said Zichun Huang, China economist at Capital Economics.

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