The Hidden Depth of China's Deflationary Crisis: An Empirical Analysis

Bloomberg investigation reveals ground-level price collapse exceeds official measurements, with corporate losses reaching 25-year highs

The Disconnect Between Official Data and Economic Reality

On November 9, 2025, Bloomberg News published comprehensive analysis revealing that China's deflationary pressures substantially exceed what official statistics indicate¹. Through systematic examination of nearly 70 everyday products and services across multiple data sources, researchers documented price declines more severe than the headline Consumer Price Index (CPI) suggests, particularly for goods ordinary consumers purchase regularly.

Beijing officials characterize China's current deflationary condition as "involution"—a destructive cycle of intense, self-destroying business competition sparked by excess capacity². Yang Zhifeng, a 24-year-old who has drifted from one low-paid position to another since graduating college two years ago, characterizes it differently: "twisted."

Yang embodies both victim and perpetrator of this vicious cycle. With employment prospects appearing limited, she opened a cocktail stall earlier in 2025 but closed it after just three months³. Discounts from food delivery platforms—drinks for mere cents—eliminated her competitive position. She considered returning to a factory position she held five years ago that previously paid approximately $980 monthly, only to discover it now pays just $630. With financial constraints tightening, she spends $1.40 or less on meals, purchased from the same delivery platforms that forced her out of business⁴. "I've become the kind of consumer who destroys businesses like mine," she stated.

Systematic Analysis: Quantifying the Price Collapse

Deflation signals a lopsided economy where supply substantially exceeds demand⁵. This imbalance damages companies, which consequently harms workers. As consumption weakens, businesses reduce spending, economic activity slows, debt burdens rise, generating additional deflation. The downward loop, known in economics as a deflationary spiral, becomes self-reinforcing once entrenched.

The trend carries significant global implications: cheap Chinese exports can depress prices internationally, strain relations with trading partners, and create cascading effects for multinational corporations⁶. Global institutions are signaling concern, with the International Monetary Fund projecting that consumer inflation in China will average zero in 2025—the second-lowest of nearly 200 economies tracked⁷. The Bank of Korea warned in July 2025 that China could export deflation to its trading partners.

The problem appears substantially worse than international institutions recognize. China's official CPI figure—which offers limited item-level detail and employs complex methodology lacking transparency—has hovered around zero since early 2023, occasionally posting modest gains⁸. Bloomberg News analyzed prices for dozens of products in 36 major cities as well as both official and private data across China to assess actual price changes on the ground.

The analysis examined items in categories including food, groceries, consumer goods and services, housing costs, and price changes for specific automotive brands⁹. Results showed prices unmistakably dropping. Among 67 items tracked by Bloomberg News, prices on 51 declined over the previous two years¹⁰.

Major Price Declines Across Multiple Sectors

Selected Price Changes (First Half 2023 vs. First Half 2025):

Source: Bloomberg analysis of China Price Information Network and qianzhan.com data¹¹

Economists indicate that official inflation measures may only partially capture reality¹². Many key data series have quietly disappeared in recent years, and the National Bureau of Statistics has never offered the granularity more common in the United States, where inflation trackers publish costs for items as specific as indoor plants and pet food. An outdated methodology for calculating rent changes in the CPI likely led to overestimation in recent years¹³.

The National Bureau of Statistics did not respond to faxed requests for comment¹⁴.

The GDP Deflator: Revealing Industrial Sector Distress

A broader gauge including upstream sectors, known as the GDP deflator, has been steadily declining for 10 quarters, indicating that deflation is substantially more entrenched in the industrial sector¹⁵. Polysilicon, the raw material for solar panels, saw prices drop to less than one-fifth of its 2022 peak. Prices for steel rebar, widely used in construction, fell to an eight-year low in May 2025¹⁶.

The price decline is already weighing measurably on company results. Recent filings show losses widening and margins thinning, with numerous firms citing weak demand and price wars¹⁷. Bloomberg News analysis of approximately 6,000 publicly traded Chinese companies points to broad-based strain.

Corporate Distress: Quantifying the Business Impact

Key Corporate Metrics (2020-2025):

• Zombie Companies: Share increased from 19% to 34% over five years (companies whose profits cannot cover interest payments on debt)¹⁸

• Capital Expenditure: Declined for most companies, first occurrence in a decade¹⁹

• R&D Spending: Decreased for majority of firms²⁰

• Employment: More than one-third of companies across industries cut jobs in 2024²¹

  
  

Source: Bloomberg analysis of company filings

Beijing is showing signs of understanding the danger. In July 2025, officials led by President Xi Jinping cracked down on excessive competition and price wars²². That move briefly stirred optimism over inflation return among financial market traders, lifting raw material prices. However, with consumers depressed and the property market still mired in slump, economists doubt government measures will substantially impact outcomes.

"The deflationary problem is systemic," stated Logan Wright, partner and director of China markets research at Rhodium Group, a research firm conducting alternative estimates of China's GDP growth²³. "We wouldn't expect that this is a short term data anomaly or anything that can be easily cyclically resolved or just fixed with a certain policy stimulus."

Political Calculations Shaping Policy Response

A clear political calculation shapes Beijing's response. China's government has been historically wary of sparking inflation or simply distributing cash to households like some other countries²⁴. Simultaneously, the party is eager to maintain momentum in technological breakthroughs and other "strategic industries." The result: measured interventions instead of bold reflation, with authorities reluctant to reduce acceleration in sectors like AI, semiconductors, and green energy.

The Employment-Consumption Feedback Loop

The squeeze doesn't stop at corporate balance sheets—it reaches paychecks and loops back into demand²⁵. Erica Chen exemplifies this dynamic. The 40-year-old previously earned more than $333,000 annually after taxes at a major internet firm in Beijing while her husband drew comfortable salary from an international technology company²⁶. A second home generated rental income while their 7-year-old son attended international school. Three nannies maintained household operations—one to cook, one to clean, one to supervise the child—a domestic payroll exceeding $49,000 annually.

Then came the layoffs. Chen's entire team was eliminated as her company attempted to stem losses from price wars and sagging consumer demand²⁷. Her husband also lost his position. The family's budget suddenly became unsustainable. The nannies were dismissed, the private school dropped, and she assumed cooking and cleaning responsibilities herself.

Erica Chen's Household Balance Sheet Transformation:

Source: Information shared by Erica Chen²⁸

She had assumed new employment would materialize quickly. Instead, months passed and applications went nowhere²⁹. She turned to gig work: livestreaming online with other laid-off friends and offering industry consultations. None have sustained. A few viewers wander into her livestreams, then vanish, leaving her talking to the void for hours. What began as stopgap has become slow dissection of her former life—a career that once consumed every waking hour but at least funded the illusion of stability.

"People say shopping is cheaper now, from restaurants to skincare," Chen stated in an interview from Beijing³⁰. "Maybe it's true, but it's none of my business anymore. I need to cut all unnecessary spending."

Multinational Corporations in the Downdraft

Multinational corporations are caught in the same downdraft³¹. Apple Inc.'s Greater China sales have slumped in most quarters since late 2022. Starbucks Corp. reported declines in 2024. Volkswagen AG and Honda Motor Co. each sold more than 30% fewer cars in 2024 than before the pandemic.

Beauty groups like L'Oréal SA and Shiseido Co., apparel giant Uniqlo's parent Fast Retailing Co., and luxury houses like Gucci parent Kering SA have all posted sharp China sales drops³².

"There is a lot of competition," former Nestlé SA chief executive officer Laurent Freixe stated in an earnings call earlier in 2025³³. "The market is very, very active, very competitive and all of that creates an environment where there is not much pricing."

Wage Stagnation and Declining Compensation

In 2024, salaries at private companies—which employ over 80% of China's urban workforce—grew at the slowest pace on record³⁴. In industries like manufacturing and information technology, wages fell for the first time in official statistics for private firms. A private survey on salaries, before being discontinued in 2024, showed average pay offers in 38 cities dropped 5% between 2022 and 2024³⁵. Even in China's prized "new economy" sectors like AI and new energy, entry-level salaries declined 7% from their 2022 peak.

Meanwhile, households have boosted their savings to the equivalent of approximately 110% of China's gross domestic product in 2024, the highest ever, indicating consumers expect lower future prices and heightened economic uncertainty³⁶.

"Money can always be spent," stated Zhu Tian, an economics professor at China Europe International Business School (CEIBS)³⁷. "But people are hesitant to spend, because the economy is slowing, expectations are low, companies aren't making profit, employment is weak, wages aren't rising, housing wealth has shrunk so much."

Individual Consumption Patterns: The Downward Adjustment

These choices are visible across cities. Consider Guo Fang, a 38-year-old former technology worker in Shanghai³⁸. Not long ago, she and her husband earned more than $281,000 annually, spent freely on designer shoes and five-star hotels, and rarely considered financial constraints.

However, after she left work to have a child in 2020, the safety net she assumed she possessed unraveled³⁹. She wants to return to work, but colleagues who once promised her return position have since been laid off. Her husband, an engineer in the automotive industry, now fears pay cuts as price wars ravage his company.

"We've cut some family trips this year as my husband feels more worried about his job," she stated⁴⁰. "When I book hotels now, I think about whether we should choose the cheaper one. That's the first time in years that I started to think it's better to cut some spending."

The Trajectory: No Clear Reversal in Sight

There is no indication that the situation in China will reverse⁴¹. Despite slight seasonal upticks in holiday spending, persistent weakness across both industrial and consumer sectors indicates China's prices are on track for a third consecutive year of deflation in 2025. The duration matters: the longer prices sag, the greater the risk that growth in the world's second-largest economy could slow for years—even decades.

Prolonged deflation would be virtually unprecedented for a major economy since World War II, with the lone exception of Japan, which only this year escaped its own painful battle of over a decade of weak prices and deflation⁴². It will also become harder for China to climb into high-income status sustainably, or to surpass the United States in economic size. Years of rising incomes and property gains had fueled dreams of upward mobility, but now deflation is quietly hollowing out the confidence of China's once-aspiring middle class.

International Comparison: China's Isolated Position

GDP Deflator Trends (2020-2025):

Sources: Bloomberg Economics (China); Bureau of Economic Analysis (US); Economic and Social Research Institute (Japan); Eurostat; UK Office for National Statistics; Bank of Korea; German Federal Statistical Office⁴³

Measurement Challenges and Methodological Concerns

Economists indicate that inflation is always difficult to measure accurately in any country, but especially in China considering its vast regional differences⁴⁴. On the positive side, prices of services in China have held up better than goods in recent years. Additionally, falling prices in some sectors reflect improved technology that has made certain products cheaper to produce.

There exists space for Beijing to implement monetary and fiscal stimulus to support the economy as well as stabilize the property market to restore consumer confidence, stated Eeva Kerola, an economist with the Bank of Finland Institute for Emerging Economies who specializes in the Chinese economy⁴⁵. However, policy interventions also carry risks, or unintended consequences from implementation errors like what happened to China's property developers in 2020, she noted.

The Urgency of Response: Expert Warnings

For Zhu, the economics professor at CEIBS, there is little time to waste for China to extract itself from this deflationary spiral⁴⁶. The government must pour more money into encouraging consumption—to the tune of half a trillion dollars—via unlimited vouchers for households to drive spending. If not, China's economy faces dangerous trouble, he stated.

"Historically, deflation is extremely rare," said Zhu⁴⁷. "If prices are down for three years and inflation doesn't come back, then people will believe it won't come back. And that's when China becomes Japan."

Conclusion: The Stakes of Prolonged Deflation

The empirical evidence reveals a deflationary crisis substantially deeper than official statistics indicate. With 76% of tracked items experiencing price declines, corporate profit margins compressing, zombie companies reaching 34% of listed firms, and wages declining in key industries, China faces a self-reinforcing deflationary spiral that threatens decades of economic progress.

The convergence of multiple independent data sources—official statistics, private surveys, corporate filings, and ground-level price monitoring—provides compelling evidence that China's deflationary pressures exceed what policymakers publicly acknowledge. The human cost manifests in stories like Yang Zhifeng, Erica Chen, and Guo Fang—individuals whose economic security has evaporated as the deflationary spiral feeds on itself.

The international implications are significant. As the world's second-largest economy potentially enters a prolonged deflationary period unprecedented since post-World War II Japan, global trade patterns, multinational corporate strategies, and international economic stability face substantial disruption. The question is no longer whether China faces serious deflation, but whether policymakers will implement sufficiently aggressive interventions before deflationary expectations become permanently entrenched in consumer and business psychology.

References and Citations

¹ Bloomberg News. "The True Cost of China's Falling Prices." Bloomberg Graphics, November 9, 2025.

² Beijing officials' characterization of "involution" as destructive business competition cycle

³ Yang Zhifeng case study: cocktail stall closure after three months due to delivery platform competition

⁴ Yang Zhifeng quote: "I've become the kind of consumer who destroys businesses like mine"

⁵ Economic definition: Deflation as signal of supply exceeding demand

⁶ Global implications: Chinese export price depression and multinational impact

⁷ International Monetary Fund projection: Zero average consumer inflation in China for 2025

⁸ China's official CPI performance: Hovering around zero since early 2023

⁹ Bloomberg analysis methodology: Dozens of products across 36 major cities

¹⁰ Bloomberg findings: 51 of 67 tracked items showed price declines over two years

¹¹ Price data sources: China Price Information Network and qianzhan.com

¹² Economist assessment: Official measures only partially capture reality

¹³ Methodology concerns: Outdated rent calculation in CPI likely causing overestimation

¹⁴ National Bureau of Statistics: No response to faxed comment requests

¹⁵ GDP deflator trend: Declining for 10 consecutive quarters

¹⁶ Industrial commodity prices: Polysilicon down to one-fifth of 2022 peak; steel rebar at eight-year low

¹⁷ Corporate filing analysis: Widening losses and thinning margins across sectors

¹⁸ Zombie company metric: Increased from 19% to 34% of listed firms over five years

¹⁹ Capital expenditure trend: First decade-long decline for most companies

²⁰ R&D spending: Decreased for majority of firms

²¹ Employment data: Over one-third of companies cut jobs in 2024

²² Government response: July 2025 crackdown on excessive competition and price wars

²³ Logan Wright quote, Rhodium Group: "The deflationary problem is systemic"

²⁴ Political considerations: Historical wariness of inflation and direct household cash transfers

²⁵ Employment-consumption feedback loop: Paycheck impacts returning to demand

²⁶ Erica Chen case study: Former $333,000+ annual income at internet firm

²⁷ Erica Chen layoffs: Entire team eliminated due to price wars and demand weakness

²⁸ Household balance sheet data: Information shared by Erica Chen

²⁹ Job search challenges: Months passing with unsuccessful applications

³⁰ Erica Chen quote: "Maybe it's true, but it's none of my business anymore"

³¹ Multinational impact: Apple, Starbucks, Volkswagen, Honda sales declines

³² Luxury and consumer goods: L'Oréal, Shiseido, Fast Retailing, Kering sales drops

³³ Laurent Freixe quote, Nestlé: Market competition creating environment with limited pricing power

³⁴ Private sector wages: Slowest growth on record in 2024

³⁵ Salary survey data: 5% decline in average pay offers across 38 cities (2022-2024)

³⁶ Household savings: Reached 110% of GDP in 2024, highest ever recorded

³⁷ Zhu Tian quote, CEIBS: Economic factors driving consumer hesitancy

³⁸ Guo Fang case study: 38-year-old former tech worker in Shanghai

³⁹ Post-2020 employment challenges: Promised return positions eliminated

⁴⁰ Guo Fang quote: First time in years considering spending cuts

⁴¹ Outlook assessment: No indication of situation reversal

⁴² Historical comparison: Japan as only major post-WWII economy with prolonged deflation

⁴³ International GDP deflator data: Bloomberg Economics and national statistical agencies

⁴⁴ Measurement challenges: Regional differences complicating accurate inflation tracking

⁴⁵ Eeva Kerola, Bank of Finland: Policy space exists but carries implementation risks

⁴⁶ Zhu Tian recommendation: Half trillion dollar consumption stimulus via household vouchers

⁴⁷ Zhu Tian quote: "That's when China becomes Japan" regarding three-year deflation

Methodology

Company Analysis: This analysis draws on half-year and annual reports from over 9,000 mainland Chinese companies listed or seeking listings globally between 2013 and 2025, as compiled by Bloomberg. Companies in financial and government sectors are excluded. Each year's analysis is based on companies reporting relevant data, covering the vast majority of listed firms.

Sector classification follows the Bloomberg Industry Classification Standard. For 2025 and 2023 profit margin analysis, only companies reporting figures in both years were included. A decline of at least 1 percentage point is considered a drop in profit margin.

To reduce noise when tracking workforce size changes, analysis includes only companies with at least 500 employees in any year during 2013-2024 period. A company is considered to have cut jobs if headcount shrank by 2% or more year-on-year.

For capital expenditure and R&D spending, a decline is defined as year-on-year drop of at least 1%. Real estate companies are excluded from this analysis portion due to structurally different investment patterns.

Price Data: Analysis compares average monthly values from first half 2023 against first half 2025 across various categories. Of 67 everyday items tracked by Bloomberg News, 51 experienced price drops between the two years.

Main source for 2025 H1 data is China Price Information Network, operated by the Price Monitoring Center of the National Development and Reform Commission (NDRC). It tracks prices of food, consumer goods, industrial products and services for 36 large and medium-sized cities in China. The 2023 data comes from qianzhan.com, which recorded earlier data releases.

Car price data is supplemented by China Auto Market. Average hotel rates from CoStar cover approximately one thousand cities and counties. Home price calculations incorporate data from Beijing, Shanghai, Shenzhen and Guangzhou, sourced from the Centaline Leading Index of Second-Hand Residential Properties. Rental data for these four cities also comes from the Centaline Leading Index of Second-Hand Residential Rents.

Additional Resources

Data Sources:

• China Price Information Network (NDRC)

• qianzhan.com

• China Auto Market

• CoStar hotel rate database

• Centaline Leading Index (residential properties and rents)

• Bloomberg company filings database

Economic Institutions Referenced:

• International Monetary Fund (IMF)

• Bank of Korea

• Rhodium Group

• China Europe International Business School (CEIBS)

• Bank of Finland Institute for Emerging Economies

This comprehensive analysis synthesizes multiple independent data sources to provide evidence-based assessment of China's deflationary crisis, revealing ground-level economic conditions substantially more severe than official statistics indicate.