China Faces Deflation Risk Despite Trade Truce Boost

Introduction

China’s economy is showing signs of strength after a trade truce with the United States. However, economists are still worried about deflation — a situation where prices keep falling, which can hurt economic growth.

China’s Growth Outlook Improves

A recent survey of 67 economists and analysts shows that China’s GDP (Gross Domestic Product) is now expected to grow 4.5% in 2025, up from the earlier forecast of 4.2%. This upgrade comes after China and the US agreed on easing trade tensions.

Export and Industry Data Show Resilience

Dennis Shen, an analyst at Scope Ratings, said that recent economic data — like industrial production and exports — show that the Chinese economy is still strong, even during tough global trade conditions.

But Deflation Is Still a Big Concern

Despite this improved outlook, many experts believe that deflation remains a serious problem. When prices fall too much:

Consumers delay purchases, expecting lower prices later.

Companies earn less profit.

Wages can stagnate or even fall.

It becomes harder for businesses to repay debts.

This can slow down the economy even if other areas look good.

Less Stimulus from the Chinese Government

The better trade environment means that China is less likely to offer big support or stimulus to its domestic economy. Earlier, investors thought the government would take more action to boost the economy.

But now, smaller policy changes are expected:

The People’s Bank of China (PBOC) may only cut its main interest rate by 10 basis points (0.10%) in the last quarter of the year.

The Reserve Requirement Ratio (RRR) — the amount of money banks must keep in reserve — is expected to fall by just 50 basis points (0.50%).

Conclusion

Even though China’s growth and trade performance have improved, the risk of deflation continues to worry experts. The country’s central bank is expected to take limited action, which may not be enough to fully fight the falling prices.

Key Takeaways

China’s 2025 GDP forecast rises to 4.5%, up from 4.2%.

Exports and industrial data show economic resilience.

Deflationary pressure remains a serious concern.

China is expected to give limited monetary support.

Economists are watching closely for further signs of price weakness.