China's Deflation Crisis: Xi Jinping's New Headache as Economy Faces 'Involution' Trap
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Firstpost•09-01-2026, 19:55
China's Deflation Crisis: Xi Jinping's New Headache as Economy Faces 'Involution' Trap
- •China recorded zero consumer price inflation in 2025, its lowest in 16 years, despite a slight December uptick driven by food costs.
- •The prolonged deflationary phase is a major challenge for the Xi Jinping-led $19 trillion Chinese economy, persisting despite aggressive policy pushes.
- •Producer prices dipped 1.9% in December, extending the deflationary streak to 39 consecutive months, fueled by overcapacity and weak pricing power.
- •The 'involution' trap, characterized by companies investing more, cutting prices, and earning less, is at the core of China's deflation problem.
- •The Chinese government launched an 'anti-involution' campaign, urging EV makers to halt aggressive discounting and tightening capacity controls.
Why It Matters: China faces a deep deflationary crisis driven by overcapacity and 'involution', challenging its economic model.
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