China’s economic outlook is currently under stress caused by its weak real estate sector, where declining property prices and demand signal broader economic issues. As property is a significant component of household wealth in China, the drop in apartment prices has made many reluctant to spend, which contributes to economic performance. Moreover, the country’s strict pandemic measures have had a long-lasting impact on consumer and business spending, despite being lifted nearly a year ago. These factors combined pose risks of deflation, where prices keep falling and economic stagnation continues, potentially creating a cycle of reduced spending and investment.

CPI inflation data released for October further confirms that perspective. Data showed a 0.2% decline in consumer prices year-on-year, signaling deflationary pressures. It is worth noting that the exceptionally outstanding group in the inflation basket was food prices, especially pork, which dropped 30% from last year. Pork’s significant presence in the consumer price index amplifies its impact due to its status as China’s most consumed meat. Core inflation also dropped by 0.6% in October.

Today, also PPI data was published. China’s Producer Price Index (PPI) fell by 2.6% year-on-year but remained unchanged from the previous month. Variations in the prices of international crude oil and non-ferrous metals, along with a high base from last year, influenced the monthly PPI figures. Specific sectors such as oil and gas extraction saw a 2.8% increase, while the non-ferrous metal industry experienced a minor dip of 0.2%.

The concerning situation in the Chinese economy significantly impacts investor sentiment in capital markets. Chinese indices are under continuous selling pressure, with the CHN.cash index losing over 12% since the beginning of the year. Additionally, the index has been in a consistent downward trend since mid-2021. Trading volume is also showing a downward trend, indicating lower investor interest in this market, but also a reluctance to sell Chinese stocks at their current low levels. Source: xStation 5.