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In addition to demographic issues, China faces structural economic challenges. Despite retail sales increasing by four percent in January and February 2025 compared to the previous year and industrial production rising by 5.9 percent during the same period (CNBC, 2025), fundamental weaknesses in the economy persist. These include insufficient domestic demand and operational difficulties for businesses. The Chinese statistics agency notes that the foundation for a sustainable economic recovery remains fragile (CNBC, 2025).
Deflation is particularly problematic because it can trigger a negative spiral where falling prices lead to reduced consumption, lower corporate profits, and higher unemployment (Rauva, 2024). Furthermore, deflation increases the debt burden for both individuals and businesses, as the nominal value of debts remains constant while the value of money rises (Rauva, 2024).