According to Bloomberg, China is facing deflation risks as demand shrinks due to the combined impact of Beijing’s ongoing strict Covid-control measures and the real estate crisis.

The deflation risks in China are in contrast with global surging inflation risks that many countries are seeing record high consumer price indexes.

According to a report released on Tuesday from China Beige Book International (CBBI), companies in China posted the slowest growth in sales prices since 2020 in the three months through September.

Leland Miller, chief executive officer of CBBI, said, “While nearly the whole world panics over surging inflation, the specter of deflation looms over China thanks to the demand-crushing effects of Covid Zero.” 

The report noted that deflationary pressure has come from the real estate sector. 

Official data shows that home prices in China reported a 12-month consecutive decline, with 50 cities posting home price declines in August, up from 40 cities in July.

Figures also show that China’s residential sales dropped about 30%, and property investment shrank by over 7.4% for the first eight months. 

Beijing’s controversial “zero-COVID” policy is a significant factor that hurts its economic activities in almost all areas of the country.   

While other countries have lifted COVID restrictions and fully opened their economies, China still imposes strict COVID-control measures to contain the virus. 

Experts expect the policy to remain until the CCP’s 20th National Congress ends. 

CBBI also said that COVID lockdowns would be expanded in the winter, increasing the deflation risks. 

China’s economy has been hit with multiple negative signs, such as youth unemployment still at nearly 20% and growth forecast cut by global financial institutions, among others.

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