The True Cost of China's Deflation

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Transcript

00:00China's economy is facing a new threat. While most of the world battles

00:04inflation, China is grappling with consumer prices that are just too low.

00:09And it could be worse than the official numbers tell us. China's official

00:13consumer inflation data offers limited detail and it's not entirely clear how

00:18it's tracked. Bloomberg tracked 67 everyday items. I found that prices are

00:23falling in 51 of them. And the pain is spreading. A brutal price war is breaking

00:29out across China's entire economy. If one company starts cutting prices, their

00:34competitors have no choice but to follow. The result? Falling prices, collapsing

00:40profits and no one wins. That phenomenon is called involution but essentially it's

00:46about the fundamental imbalance between supply and demand. This isn't just a

00:51competition problem. It completely crushes corporate earnings and slams workers

00:56paychecks. Last year, 25% of Chinese listed companies made a loss. That's the

01:02highest percentage this century. And in 2024, a third of companies cut jobs. This

01:09shows China is in a deep deflationary spiral. If consumers stop spending,

01:14businesses stop investing, the economy slows down and debt piles up. Beijing is

01:19trying to hit the brakes. In July, President Xi Jinping and his top lieutenants

01:24ordered a crackdown on excessive consumption. But with a property slump

01:28deepening and consumers too nervous to spend, most experts think the

01:32government's fix won't even move the needle. Our tracking suggests prices in

01:37China are set to fall for the third year in a row in 2025. This is the world's

01:42second largest economy. The longer prices stay low, the greater the risk that

01:47growth will stall for years, even decades.