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Only thing worse than inflation, is deflation.

Losing 30% of your main ‘investment’ will make for an unhappy populace.

“China Is Risking a Deflationary Spiral”

“As China sits on the precipice of deflation, Wall Street economists are calling for more fiscal stimulus in the country. But Beijing may still not act boldly enough.

While much of the West has been combating inflation over the past couple of years, China is facing the opposite.

Deflationary pressure is building up in the country. China’s consumer prices rose 0.6% from a year earlier in August, but that was largely driven by food prices, which were affected by extreme weather. Stripping out food and energy, China’s core CPI actually only rose 0.3%. Another way to look at this is the so-called GDP deflator, which is the difference between China’s nominal and real GDP growth, representing broad changes in prices. By that measure, China has already been in deflation for five straight quarters.

The implosion of the housing market has put a drag on the whole economy. Property developers, and related sectors such as materials, have scaled back their investments. Households, for whom property has long been the most important wealth-building asset, have tightened their purse strings. Lower consumer spending has pushed prices down, which puts pressure on corporate profits and in turn wages. That risks creating a vicious cycle, making deflation more entrenched. In a recent note, Morgan Stanley’s analysts went as far as saying that deflation is now China’s “public enemy #1.” “

https://www.wsj.com/economy/china-is-risking-a-deflationary-spiral-75702b5b?mod=hp_minor_pos20