Inflation has been one of the biggest headaches for economies around the world. This is also true for China, but in its case for reasons opposite to those of the rest of the world: the lack of price increases (year-over-year inflation in China was zero in June) shows that the post-pandemic recovery of the Chinese economy has lost momentum and that the Asian giant faces deflationary risks. The producer price index, which measures the average change in selling prices for local producers of goods and services, fell 5.4% between July 2022 and June 2023.

The drop in the price of oil and other commodities is among the reasons behind the slump, but analysts agree that low demand is a problem. The problem, they point out, is that unlike in 2009, when the country faced deflation due to the global financial crisis, the Chinese government has little room to maneuver to stimulate consumption and the economy. At that time, it injected more than US$500,000 million into the economy and relaxed debt limits for provincial governments, which drove debt to alarming levels. Today, given the risks posed precisely by the economy’s high debt levels, that strategy is limited.

The Chinese government has announced that it will implement targeted measures to boost demand, but without providing further details. For now, monetary authorities cut the prime lending rate for one-year and five-year loans in June, introduced tax breaks for electric vehicle buyers, and enacted measures to ease credit constraints affecting the real estate sector. 

This has affected the price of copper, which has fallen by nearly 10% over the past six months.