China’s Former Central Bank Governor Calls for Fighting Deflation

Former Chinese central bank governor Yi Gang stressed the country’s need to combat deflationary pressures in a speech at the Bund summit in Shanghai. Amid challenges such as a property crisis and weak domestic demand, Yi highlighted the pressure on business profits and wages in China’s $18 trillion economy.Yi, who currently serves as deputy leader of the economic committee of the Chinese People’s Political Consultative Conference (CPPCC), said China’s nominal GDP is showing positive growth, but personal income and tax revenues should also be taken into consideration.

Yi stressed the importance of improving domestic demand, addressing real estate market problems and managing local government debt to support employment and income prospects.

China’s economy grew by 5.0% in the first half of 2024, but growth momentum slowed from the second quarter. Yi underlined the need for proactive fiscal policy and accommodative monetary policy to support weak domestic consumption and investment.

The unemployment rate for youth aged 16-24, excluding students, rose to 17.1% in July from 13.2% the previous month, further highlighting the economic challenges China faces.

Price stability and moderate inflation are important issues for China’s monetary policy, the central bank said. However, the consumer price index (CPI) increased only 0.2% annually on average from January to July, while the producer price index (PPI) has been in deflation for almost two years, reflecting persistent downward price pressures.

Yi acknowledged the challenges but called for determination, saying efforts should be made to ensure the GDP deflator turns positive. UBS revised China’s 2024 GDP deflator forecast to -0.4 from 0, citing a deeper real estate downturn, a decline in upstream goods prices, and increased price competition due to weak consumer demand.