China must take action to avoid Japan-style deflation spiral, scholars warn
Unless Beijing introduces more forceful policies, consumers could get locked into a mindset that is ‘nearly impossible to break’, scholars say
As China grapples with persistent deflationary pressure, scholars from one of the country’s top universities have urged the government to take more forceful action to prevent the economy from becoming trapped in a Japan-style downward spiral.
“Japan’s experience has shown that once households form the expectation that prices won’t rise over the medium to long term, it becomes nearly impossible to break that mindset,” said He Xiaobei, a professor at Peking University’s National School of Development.
“Japan has only just emerged from deflation – but that was largely driven by external shocks like the pandemic and the Russia-Ukraine war,” she said, stressing that it was not caused by changing public expectations.
The remarks came as the school released its quarterly report on China’s economy on December 28, which urged the government to make reviving inflation the main goal of its monetary policy.