China's consumer price index fell 0.7% year-on-year in January 2026, marking the fifth consecutive month of negative readings. The producer price index (PPI) declined 2.3%, extending a deflationary streak that began in October 2022. The persistent weakness in prices reflects chronic overcapacity in manufacturing, a prolonged property sector downturn, and subdued household consumption.
Property Sector Continues to Drag
The property sector, which at its peak accounted for approximately 29% of GDP including related industries, remains in deep distress. New home prices in China's 70 major cities fell for the 18th consecutive month. Major developers including Country Garden and Vanke face liquidity pressures, with Country Garden having defaulted on offshore bonds in 2023 and Vanke reporting its first quarterly loss since the 1990s.
Housing sales in value terms were approximately 40% below 2021 peak levels. Local government revenues, heavily dependent on land sales, have fallen sharply, constraining fiscal spending capacity. An estimated 20 million pre-sold apartments remain undelivered nationwide, representing approximately $400 billion in stalled projects.
Consumer Confidence
Chinese households have responded to economic uncertainty by increasing savings. The household savings rate has risen above 33%, compared to approximately 30% pre-pandemic. Retail sales growth has averaged just 3-4% year-on-year, well below the 8-10% growth rates that characterised the 2015-2019 period. Youth unemployment (ages 16-24), using the revised methodology that excludes students, was approximately 14.9%.
Policy Response
The People's Bank of China has cut the one-year loan prime rate to 3.1% and the reserve requirement ratio to 9.5%, the lowest level in years. However, credit demand remains weak despite lower rates, a dynamic economists describe as a "liquidity trap" or "balance sheet recession" similar to Japan's experience in the 1990s. Fiscal stimulus has focused on infrastructure spending and local government debt restructuring through a 10 trillion yuan swap programme.
For Chinese economic data, visit National Bureau of Statistics. For property sector analysis, see Reuters Asia Markets.