The True Cost of China’s Falling Prices

Bloomberg analysis shows deflation on the ground feels more pronounced than official data show, with prices of everyday goods plunging and the share of loss-making companies at a 25-year high.

By Bloomberg News November 9, 2025

Beijing officials call China’s current deflationary malaise “involution” — a destructive cycle of intense, self-destroying business competition sparked by excess capacity. Yang Zhifeng calls it something else: “twisted.”

The 24-year-old, who has drifted from one low-paid job to another since graduating college two years ago, is living in the reality of a deflationary spiral that Bloomberg News analysis found looks even deeper than what the official numbers show. Using data on almost 70 everyday products and services from multiple sources, our analysis showed prices dropped more sharply than the headline Consumer Price Index indicates, especially for goods that ordinary consumers buy.

Yang is both a victim and perpetrator of this vicious cycle. With job prospects looking slim, she opened a cocktail stall earlier this year but had to close it just three months later. Discounts from food delivery platforms — drinks for a few cents — wiped her out. She considered going back to a factory job she had five years ago that used to pay about $980 a month, only to find it now pays just $630. With money tight, she spends $1.40 or less on meals, bought from the same delivery platforms that forced her out of competition. “I’ve become the kind of consumer who destroys businesses like mine,” she said.

Yang Zhifeng, between jobs, in Shanghai while visiting friends.Photographer: Qilai Shen/Bloomberg

She’s just one example out of many where falling prices are hurting the bottom line.

Deflation signals a lopsided economy where supply dwarfs demand. That hurts companies, which in turn hurts workers. As consumption weakens, businesses spend less, economic activity slows, debt burdens rise, which then causes more deflation. The downward loop, known in economics as a deflationary spiral, feeds on itself once entrenched.

The trend also carries global implications: cheap Chinese exports can depress prices abroad, strain relations with trading partners, and create knock-on effects for multinational companies. Global institutions are sounding the alarm, with the International Monetary Fund projecting that consumer inflation in China will average zero this year — the second-lowest of nearly 200 economies it tracks. The Bank of Korea warned in July that China could export deflation to its trading partners.

And the problem could be even worse than they realize. China’s official CPI figure — which offers limited item-level detail and is shaped by a complex methodology that isn’t transparent — has hovered around zero since early 2023, occasionally posting modest gains. Bloomberg News analyzed prices for dozens of products in 36 major cities as well as both official and private data across China to get a sense of how much cheaper things have become on the ground. We looked at items in categories like food, groceries, consumer goods and services, as well as housing costs and price changes for specific car brands.

The analysis showed that prices are unmistakably dropping. Among 67 items tracked by Bloomberg News, prices on 51 dropped over the last two years. Economists say that official inflation measures may only partially capture the reality. Many key data series have quietly disappeared in recent years, and the National Bureau of Statistics has never offered the sort of granularity more common in the US, where inflation trackers go so far as to publish the cost of indoor plants and pet food. An outdated methodology for calculating rent changes in the CPI likely led to its overestimation in the past few years.

The NBS didn’t reply to a faxed request for comment.

Major Price Drops Hit Multiple Sectors

Average price change between the first half of 2023 and same period in 2025

Source: Bloomberg analysis of data from China Price Information Network and qianzhan.com.

Note: Major cities here include Beijing, Shanghai, Shenzhen and Guangzhou. See methodology section for more details.

Meanwhile, a broader gauge that includes upstream sectors, known as the GDP deflator, has been steadily declining for 10 quarters, indicating that deflation is much more entrenched in the industrial sector. Polysilicon, the raw material for solar panels, saw prices drop to less than a fifth of its peak in 2022. Prices for steel rebar, widely used in construction, fell to an eight-year low in May.

The drop in prices is already weighing on company results. Recent filings show losses widening and margins thinning, with many firms citing weak demand and price wars. A Bloomberg News analysis of around 6,000 publicly traded Chinese companies points to a broad-based strain.

Each square represents a listed Chinese company

Sources: Company filings; Bloomberg

Notes: Data as of Nov. 4, 2025. Includes companies that reported figures in both 2023 and 2025. Financial and government-sector firms are excluded. See methodology section for more details.

Beijing is showing signs of understanding the danger. In July, officials led by President Xi Jinping cracked down on excessive competition and price wars. That move briefly stirred optimism over a return of inflation among financial market traders, lifting raw material prices. But with consumers depressed and the property market still mired in a slump, economists doubt the government’s measures will move the needle.

“The deflationary problem is systemic,” said Logan Wright, a partner and director of China markets research at Rhodium Group, a research firm that has done alternative estimates of China’s GDP growth. “We wouldn’t expect that this is a short term data anomaly or anything that can be easily cyclically resolved or just fixed with a certain policy stimulus.”

There’s also a clear political calculation shaping Beijing’s response. China’s government has been historically wary of sparking inflation or simply handing cash to households like some other countries. At the same time, the party is eager to maintain momentum in tech breakthroughs and other “strategic industries.” The result: measured interventions instead of bold reflation, with authorities reluctant to take the foot off the accelerator in sectors like AI, semiconductors and green energy.

Nannies

international school

The squeeze doesn’t stop at the balance sheet. It reaches paychecks — and loops back into demand. Erica Chen is a prime example. The 40-year old used to earn more than about $333,000 a year after taxes at a major internet firm in Beijing while her husband drew a comfortable salary from an international tech company. A second home brought in rental income while their 7-year-old son attended international school. Their three nannies kept the household humming — one to cook, one to clean, one to watch the child — a domestic payroll exceeding $49,000 a year.

Then came the layoffs. Chen’s entire team was cut as her company tried to stop the bleeding from price wars and sagging consumer demand. Her husband also lost his job. The family’s budget suddenly looked unsustainable. The nannies were dismissed, the private school dropped and she took on the cooking and cleaning herself.

Erica Chen’s Household Balance Sheet

Source: Information shared by Erica Chen

Note: Chen and her husband’s income consists of their after-tax salaries. Currency conversion is based on average Q1-Q3 2025 USD/CNY daily exchange rate.

She had assumed a new job would come quickly. Instead, months passed and applications went nowhere. She turned to gig work: livestreaming online with other laid-off friends and offering industry consultations. None have stuck. A few viewers wander into her livestreams, then vanish, leaving her talking to the void for hours. What began as a stopgap has become a slow dissection of her old life — a career that once consumed every waking hour but at least paid for the illusion of stability.

“People say shopping is cheaper now, from restaurants to skincare,” Chen said in an interview from Beijing. “Maybe it’s true, but it’s none of my business anymore. I need to cut all unnecessary spending.”

Across the market, company results show the same pressures: the share of “zombie” firms — those whose profits can’t cover interest payments on their debt — rose from 19% to 34% over the past five years; capital and R&D spending fell for most companies, a first in a decade; and more than a third of companies across industries cut jobs in 2024.

More Than Shrinking Profits

Sources: Bloomberg analysis of company filings

Notes: Analysis covers all listed Chinese companies with consecutive years of data, excluding financial firms and those in the government sector. Zombie companies are defined as those with an EBIT-to-interest ratio below 1 in a given year. See methodology section for more details.

Multinationals are caught in the downdraft, too. Apple Inc.’s Greater China sales have slumped in most quarters since late 2022. Starbucks Corp. reported declines last year. Volkswagen AG and Honda Motor Co. each sold more than 30% fewer cars in 2024 than before the pandemic.

Beauty groups like L’Oréal SA and Shiseido Co., apparel giant Uniqlo’s parent Fast Retailing Co., and luxury houses like Gucci parent Kering SA have all posted sharp China sales drops.

“There is a lot of competition,” former Nestlé SA chief executive officer Laurent Freixe said in an earnings call earlier this year. “The market is very, very active, very competitive and all of that creates an environment where there is not much pricing.”

A closed-down Audi dealership in Beijing, photographed in September.Photographer: Gilles Sabrié/Bloomberg

Last year, salaries at private companies — which employ over 80% of China’s urban workforce — grew at the slowest pace on record. In industries like manufacturing and IT, wages fell for the first time in official statistics for private firms. A private survey on salaries, before being discontinued last year, showed average pay offers in 38 cities dropped 5% between 2022 and 2024. Even in China’s prized “new economy” sectors like AI and new energy, entry-level salaries are down 7% from their 2022 peak.

Meanwhile, households have boosted their savings to the equivalent of around 110% of China’s gross domestic product last year, the highest ever, indicating consumers are expecting lower prices in the future and heightened economic uncertainty.

“Money can always be spent,” said Zhu Tian, an economics professor at China Europe International Business School (CEIBS). “But people are hesitant to spend, because the economy is slowing, expectations are low, companies aren’t making profit, employment is weak, wages aren’t rising, housing wealth has shrunk so much.”

Those choices are visible across cities.

Designer shoes

Five-star hotels

Family vacations

Consider Guo Fang, a 38-year-old former tech worker in Shanghai. Not long ago, she and her husband made more than $281,000 a year, spent freely on designer shoes and five-star hotels, and rarely thought about money.

But after she left work to have a child in 2020, the safety net she thought she had unraveled. She wants to get back to work, but colleagues who once promised her a job to return to have since been laid off. Her husband, an engineer in the auto industry, now fears pay cuts as price wars ravage his company.

“We’ve cut some family trips this year as my husband feels more worried about his job,” she said. “When I book hotels now, I think about whether we should choose the cheaper one. That’s the first time in years that I started to think it’s better to cut some spending.”

A shopping mall in Beijing in August. Photographer: Qilai Shen/Bloomberg

There is no suggestion that the situation in China will be reversed. Despite slight seasonal upticks on holiday spending, persistent weakness across both the industrial and consumer sectors indicates China’s prices are on track for a third consecutive year of deflation in 2025. And that matters: the longer prices sag, the greater the risk that growth in the world’s second-largest economy could slow for years — even decades.

Prolonged deflation would also be virtually unprecedented for a major economy since World War II, with the lone exception of Japan, which just this year escaped its own painful battle of over a decade of weak prices and deflation. It’ll also become harder for China to climb into high-income status sustainably, or to surpass the US in economic size. Years of rising incomes and property gains had fueled dreams of upward mobility, but now deflation is quietly hollowing out the confidence of China’s once-aspiring middle class.

China Alone in Deflation

A broad price gauge—the GDP deflator—shows China entered deflation in 2023, even as CPI stayed muted.

Sources: Bloomberg Economics (China data); Bureau of Economic Analysis (US); Economic and Social Research Institute (Japan); Eurostat; UK Office for National Statistics; Bank of Korea; German Federal Statistical Office

Economists say that inflation is always hard to measure accurately in any country, but especially in China considering its vast regional differences. On the bright side, prices of services in China have held up better than goods in recent years. Plus, falling prices in some sectors are a reflection of improved technology that’s made some products cheaper to produce.

There’s also space for Beijing to implement monetary and fiscal stimulus to support the economy as well as stabilize the property market to restore consumer confidence, said Eeva Kerola, an economist with the Bank of Finland Institute for Emerging Economies who specializes in the Chinese economy. However, policy interventions also come with risks, or unintended consequences from getting it wrong like what happened to China’s property developers in 2020, she said.

For Zhu, the economics professor at CEIBS, there is little time to waste for China to get itself out of this deflationary spiral. The government must pour more money into encouraging consumption — to the tune of half a trillion dollars — via unlimited vouchers for households to drive spending. If not, China’s economy is in dangerous trouble, he said.

“Historically, deflation is extremely rare,” said Zhu. “If prices are down for three years and inflation doesn’t come back, then people will believe it won’t come back. And that’s when China becomes Japan.”