China is fighting a problem most central banks would find unfamiliar: not enough inflation. Consumer prices have been barely positive since mid-2023 — the World Bank WDI for China shows the dramatic deceleration from 2% in 2022 to near zero in 2023–2026. More worrying, China's Producer Price Index has been negative for over two years, meaning factories are selling goods at falling prices — a dynamic that exports deflationary pressure to every country that imports Chinese manufactured goods.
The property sector at the centre
The proximate cause of China's deflation risk is the collapse of its property sector. Property development and related activities account for roughly 25–30% of Chinese GDP (directly and indirectly). After the government crackdown on developer leverage in 2021 (the "three red lines" policy), developers like Evergrande and Country Garden defaulted on hundreds of billions of dollars of debt. New-home prices fell ~6% year-on-year in October 2026. For Chinese households — who hold about 70% of their wealth in property — this represents a massive wealth destruction, suppressing consumption. The IMF China Article IV consultation and the World Bank China overview both flag the property sector as the central macro risk.
Why China's deflation matters globally
China is the world's largest goods exporter. When Chinese factory-gate prices fall, the prices of manufactured goods around the world fall too — or rise more slowly. This "Chinese deflation export" helped suppress goods inflation in the US and Europe in 2024–2025, partially offsetting services price stickiness. The BIS Quarterly Review has documented the global transmission of Chinese PPI movements. The OECD Economic Outlook projects China's CPI to rise only modestly toward 1% by 2027 — well below the People's Bank of China's informal 3% target. Track China's inflation history on our China inflation chart.