Xi Jinping’s Ignorance of the Economy: August Overshadowed by Deflation, Bad News Piling Up

Illustration: China's economy continues to decline. (Photo by China Photos/Getty Images)

[People News] China’s economic performance and data for August brought more bad news. In addition to shrinking foreign trade, China’s Consumer Price Index (CPI) in August fell 0.4% year-on-year, worse than expected, plunging deeper into the shadow of deflation. Analysts believe China’s economy faces deep structural difficulties, with little hope for recovery ahead. Earlier, U.S. media pointed out that Xi Jinping’s ignorance of economics has worsened China’s deflation problem.

CPI Continues to Fall, Deflation Deepens

On September 10, the CCP’s National Bureau of Statistics released figures showing that China’s August CPI dropped 0.4% year-on-year — the steepest decline since March this year and worse than Reuters’ forecast of a 0.2% drop. This marks the second time in six months CPI has fallen into negative territory.

Food prices fell 4.3% year-on-year, worsening the overall economic malaise, with pork prices plunging most sharply, down 16.1%.

Looking at CPI trends, since March 2023, for nearly two and a half years, China’s CPI has hovered around zero, showing stagnant price levels, while youth unemployment has remained stubbornly high. The spectre of deflation is unmistakable.

The Wall Street Journal revealed late last year that Xi Jinping failed to understand expert reports warning of deflation, reportedly asking: “What’s wrong with deflation? Don’t people like cheaper prices?” Bloomberg has since quoted economists warning that China is heading for prolonged deflation, calling it “the longest deflationary cycle since Mao Zedong’s Great Famine.”

Consumers are tightening their wallets. According to TBVS News, Starbucks, once China’s coffee giant with a 34% market share in 2019, has now dropped to 14%. With consumption downgraded, Starbucks is preparing to sell off 70% of its stake in China. The main reason: consumers say, “It depends on price.”

One Chinese consumer remarked, “Starbucks is far beyond what I can afford. I have a coffee machine at home, so I brew my own coffee — about two cups a day. It’s really cheap and convenient for me.”

Gary Ng, senior economist for Asia-Pacific at Natixis, noted: “Over the past six to nine months, growth has largely relied on government subsidies. Some products rose only because of these subsidies. But as we move into the second half of the year, with many policies already in place, the key question is whether consumer confidence can truly recover. That’s what we need to watch.”

Nikkei Asia cited an analysis pointing out that continued weakness in food prices shows early signs of recovery are fading, highlighting the drag of weakening domestic demand and slowing exports.

PPI Weakness Shows Declining Corporate Profits

China’s Producer Price Index (PPI), reflecting raw material costs, fell 2.9% in August. Although the drop narrowed by 0.7 percentage points from the previous month, PPI has now been in negative territory for 34 consecutive months since October 2022.

PPI measures prices before goods enter the wholesale or distribution stage. The persistent decline since late 2022 shows a long-term trend of contraction.

Weak PPI indicates falling profit margins for businesses — bad news in an environment where industries such as automobiles and food delivery are locked in brutal “involution” and price wars.

Export Growth Slows in August

According to customs data released September 8, exports in August continued to grow but at a slower pace than in previous months. Total exports reached $32.18 billion, up 4.4% year-on-year, significantly lower than July’s 7.2% growth.

China’s exports to the United States in August plummeted 33% to $4.73 billion, while imports from the U.S. also fell 16% to $1.34 billion.

Overall, the three pillars of China’s economy — consumption, exports, and investment — are losing momentum.

Xi Jinping’s Refusal to Pursue Structural Reform

Radio France Internationale cited Le Figaro, which published an article in its economics section revealing that China faces the dual challenges of deflation and shrinking trade. Amid the ongoing U.S.-China trade conflict, Beijing is being forced to seek external solutions.

The report noted that, despite the slowdown and collapsing investor confidence, authorities remain unwilling to launch large-scale stimulus measures, let alone undertake structural reforms.

It added that the images of pomp staged by the CCP propaganda machine at the Shanghai Cooperation Organisation summit and the military parade — broadcast worldwide — were nothing but illusions, providing only fleeting respite.

The paper also highlighted China’s grave problems: a slowing economy, weak household consumption, lingering fallout from the property crisis, difficulties for young job seekers, declining birth rates, and destructive price wars in industries like new energy.

With deflation deepening and exports slowing, most observers agree: China faces deep structural challenges and the road to recovery looks bleak.

In September, Beijing officially launched a “consumer loan interest subsidy policy” to encourage households to spend and invest more. But the latest statistics show that among China’s 42 listed banks, nearly all are reporting rising non-performing personal loans — a new warning signal that further undermines market confidence and makes survival even harder for businesses.

△