Chine – Deflation into 2026 & Beyond

QUESTION: Thank you so much for your world forecasts. It is very helpful to be able to read you here in China. You said that deflation is in motion into 2028. People are cutting back on spending and your model has been correct here in China. Could you provide a quick overview for 2025?

DZ

ANSWER: President Xi Jinping has acknowledged that 2025 will be a challenging year of reform. He’s not wrong, at least about the second point. Deflation remains the major problem going into 2028. Prices are indeed falling as households curtail their spending. We are all human, and as soon as economic uncertainty appears on the horizon, people will hoard their cash. This is self-evident from ancient times.

I am doing my best to try to explain to anyone who will listen that this hairbrain idea of Trump and tariffs will bring about an economic depression as we move into 2028 and he has the risk that his legacy will match that of Herbert Hoover. There were the Sovereign Defaults of 1931 and that wiped out capital formation. That was the major cause of more than 9,000 bank failures in the USA. We also face massive sovereign defaults, with the worst in Japan and Europe. Add tariffs to this bearish economic outlook, and Trump will export deflation, and with that, the US will also not be able to see overseas. The entire world’s GDP will decline by about 20%.

The People’s Bank of China is as trapped as the rest of the central banks, and it will be unable to stop the deflation without adopting a new economic theory. We are approaching 2026, which will be an important year for our models, and it is even 72 years from the formation of the Chinese Constitution, which was enacted on September 20th, 1954, with the first meeting of the National People’s Congress in Beijing unanimously approval the 1954 Constitution of the People’s Republic of China. It was a matter of weeks when, on October 1st, 1954, The China Construction Bank was founded.

Canada was the first central bank to cut rates within days of this Economic Confidence Model turning on May 7th, 2024. Overall, we are in a deflationary atmosphere into 2028. With regard to China, the downturn can be hard for two years into 2026.