The View | Beijing risks fiddling while China’s economy sinks further into deflation

It’s grand, of course, that investors think Fed chairman Jerome Powell may pull off that most elusive feat known as a “soft landing”. But the deepening deflation confounding PBOC governor Pan Gongsheng will keep any celebratory impulses to a minimum.

Statistically speaking, the 0.5 per cent year-on-year drop in China’s consumer price index last month might not seem too dire. But when seen in the context of the myriad headwinds racing China’s way, 2024 may already be something of a washout for Asian economies.

Pan’s team is contending with a massive housing bubble deflating in real time, rapid capital outflows, cratering business and consumer sentiment, elevated global bond yields and a crisis of confidence in President Xi Jinping’s readiness to stabilise things. Making matters worse, the PBOC is operating in an environment where the Communist Party is sending decidedly mixed signals.

This latter dynamic looms large following last week’s central economic work conference. In the days before the annual planned session, state media created the impression that bold stimulus moves were on the way. The confab ended without plans to jolt a slowing economy.

On the surface, this might sound pragmatic, perhaps even reassuring. It could be read as a hint that Xi’s government is optimistic about 2024 and that traders shorting Shanghai stocks might want to rethink strategies. Below it, deflationary forces are stirring in ways that suggest a dangerous level of complacency in Beijing.