BEIJING: The Chinese government has promised new child care subsidies, increased wages and better paid leave to revive a slowing economy. That is on top of a $41bn discount programme for all sorts of things, from dishwashers and home decor to electric vehicles and smartwatches.
Beijing is going on a spending spree that will encourage Chinese people to crack open their wallets.Simply put, they are not spending enough. Monday brought some positive news. Official data said retail sales grew 4% in the first two months of 2025, a positive sign for consumption data. But, with a few exceptions like Shanghai aside, new and existing home prices continued to decline compared to last year.
While the US and other major powers have struggled with post-Covid inflation, China is experiencing the opposite: deflation – when the rate of inflation falls below zero, meaning that prices decrease. In China, prices fell for 18 months in a row in the past two years.
Prices dropping might sound like good news for consumers. But a persistent decline in consumption – a measure of what households buy – signals deeper economic trouble. When people stop spending, businesses cut prices to attract buyers. The more this happens, the less money they make, hiring slows, wages stagnate and economic momentum grinds to a halt.
That is a cycle China wants to avoid, given it’s already battling sluggish growth in the wake of a prolonged crisis in the property market, steep government debt and unemployment
