Chengdu, China – A street in the center of Chengdu, in southwestern Sichuan province, is lined with small grocery stores and restaurants selling noodle soups, dumplings, and staples. Fu Dong took over his father’s grocery store here 15 years ago, selling rice, nuts, eggs, and milk. “Prices are rising. Maybe it’s related to the increase in vegetable prices,” he says.
Data from China’s National Bureau of Statistics shows that fresh vegetables, fruits, and fish became more expensive in January compared to the same month last year. However, overall food prices fell slightly, by 0.7 percent. Other goods, consumer products, and services became a little more expensive. Overall consumer prices in China rose by 0.2 percent in January compared to the previous year, a moderate increase that has been emerging since mid-last year.
Dawn Hu, a Chinese teacher in Chengdu, observes a similar trend. She notes that while prices haven’t increased dramatically compared to last year, much has changed since before the COVID-19 pandemic, with many things becoming more expensive. Many people in China are buying less and saving more. Consumer spending has recovered slowly since the pandemic. “I compare prices at different stores before buying anything. Even if it’s only a few yuan, I feel a sense of accomplishment,” she says.
The weak consumer spending is also affecting businesses. Hu Xianrong has been running a small kiosk for five years. Things were good a few years ago, but now he hears everywhere that businesses are struggling. “The current economic situation is not good. When customers come, they only buy the cheapest things,” Hu Xianrong complains. “They used to spend 50 yuan on a pack of cigarettes, now only 10 to 20 yuan to save a little. Because the economy isn’t doing well, people aren’t spending as much.”
Since Corona, Many Things Have Become More Expensive
China’s economy has been on the verge of deflation for some time, struggling with falling prices, which is considered bad for the economy. Falling producer prices, coupled with weak domestic demand, are key factors. Much of the output is then sold abroad because the domestic market is weak.
China’s state and party leadership recognizes the problem. Overproduction is to be curbed and the domestic market strengthened. The Chinese leadership wants the economy to rely less on exports in the future. To strengthen the domestic market, China’s leadership has been trying to boost consumption for some time, for example with shopping vouchers and cheaper loans – so far with moderate success.
Su Jian, an economics professor at Peking University, sees a need for further action. One problem is the social security system, which does not provide people with enough security to spend money. They tend to save. “In fact, one of the reasons for the lack of domestic demand in China is that our current social security system still needs to be improved; it is not perfect. When it comes to spending money, people are worried. The next step would be to improve the social security system.”
Overproduction is Pressuring Prices
China’s economy has been on the verge of deflation for some time, struggling with falling prices, which is considered bad for the economy. Producer prices also fell in January, although the decline has eased somewhat recently. Overcapacity and price pressure are a major problem in China, with manufacturers producing more than they can sell and offering goods at ever-lower prices.
According to reports from late 2024 and early 2025, China is grappling with deflationary pressures, with both consumer and producer price indices remaining in negative territory. Capital Economics economist Zichun Huang expects both CPI and PPI to remain negative through this year and next. Bloomberg reported in July 2025 that factory gate deflation intensified, signaling continued weak demand. A report from December 2024 by Merics, a Berlin-based think tank, highlighted economic headwinds and the possibility of a trade war with the US as contributing factors to China’s economic woes.
The situation is complicated by geopolitical factors. With Donald Trump expected to return to the White House in 2025, China is preparing for stronger economic and geopolitical competition with Washington. Beijing anticipates potential high tariffs on Chinese imports and stricter restrictions on technology exchanges. The Merics report suggests China will attempt to build a coalition of countries to resist US pressure, with Russia as a key partner. This could involve courting European nations, despite the limited substance of any offers to improve relations, in an effort to exploit transatlantic tensions.
The broader economic context suggests a challenging outlook for China. The country’s leadership is prioritizing social welfare, cohesion, and public security alongside economic concerns. The combination of deflation, geopolitical uncertainty, and a potential shift in US trade policy creates a complex environment for Chinese businesses and consumers. The focus on strengthening the domestic market and improving the social safety net reflects an attempt to address these challenges, but the effectiveness of these measures remains to be seen.
