Understanding Deflationary Trends in China: Internal and External Factors Analysis
- 1 UCL School of Slavonic and East European Studies, University College London, London, United Kingdom
* Author to whom correspondence should be addressed.
Abstract
This paper investigates the recent deflationary trend observed in China, exploring its underlying causes from both internal and external perspectives. Since the 1970s, China has undergone significant economic reforms, embraced market principles and experienced a substantial expansion in its money supply. Despite expectations of inflation due to the substantial money supply relative to GDP, China has experienced a period of low or negative inflation rates since April 2023. This study examines potential factors contributing to this deflationary period, including exchange rate fluctuations, monetary policy dynamics, economic structural shifts, and external shocks. Furthermore, the paper evaluates the development of transmission routes of monetary policy and possible impacts on the responsiveness of price level to money supply, particularly within the context of China's evolving financial system. Additionally, it analyses shifts in the key drivers of the Chinese economy—investment, net exports, and consumption—and their role in exacerbating deflationary pressures. The study extends its analysis to February 2024, observing potential signs of a transition away from deflation. It emphasizes the risks associated with deflation and the Chinese government's efforts to balance inflation targets with economic stability and employment objectives, particularly in light of challenges in the real estate sector.
Keywords
Money supply, inflation rate, economic growth, structural change, real estate
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Cite this article
Kang,W. (2024).Understanding Deflationary Trends in China: Internal and External Factors Analysis.Advances in Economics, Management and Political Sciences,120,48-52.
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