Lost decade risk for China as PBOC money growth disappoints | Insights | Bloomberg Professional Services

This article was written by Isabella Yuan. It appeared first on the Bloomberg Terminal. 

Background

The danger of deflation in China is becoming real as central bank easing measures do little to revive growth.

Issue

Media coverage of China deflation on the terminal surged last week to the highest since 2015. A slew of poor reports even fueled speculation the world’s second-largest economy is heading for the type of lost decade Japan suffered in 1980s. While the People’s Bank of China lowered the seven-day reverse repurchase rate and banks’ reserve requirement ratios, the nation’s money supply growth hasn’t risen. Households’ willingness to invest is near an all-time low.

Use Bloomberg’s NT & IFMO functions to track macro trends.

Mentions of deflation in media coverage on the terminal surged last week to the highest since 2015 when the mainland’s stock market bubble burst. Early optimism over China’s post-Covid rebound has turned into despair with the benchmark Shanghai Shenzhen CSI 300 Index unable to shake off a downtrend that started more than two years ago. Type “NT LOST DECADE IN CHINA” and hit <GO>. Change period to Monthly and Max to see 51 stories on this theme in June, the most since 2014.

The bottom chart shows China is on the brink of seeing a full-fledged deflation after the latest inflation reading came in flat in June, while other Asian economies are still fighting inflation.

On a month-on-month basis, six out of eight categories in the CPI basket showed outright deflation due to weakening consumption, David Qu, a Bloomberg Economics economist, wrote. Manufacturers experienced falling gate prices for a third consecutive month.