On Monday (June 9th), the Chinese Communist Party released the import and export data for May, as well as the CPI and PPI data, indicating that China’s economy is facing overcapacity and ongoing monetary tightening, leading to further deterioration of the economic situation.
Experts believe that the simultaneous “stalling” of China’s dual engines of exports and consumption highlights deep-seated confidence and structural issues in the Chinese economy, with the CCP being the main culprit behind all these problems. With China’s economy deeply stuck, there seems to be no way out unless significant changes occur in the Chinese political landscape to overturn current economic policies, otherwise the vicious cycle of deflation cannot be broken.
The General Administration of Customs of the CCP released data on Monday (June 9th) showing that in US dollar terms, the year-on-year growth rate of exports in May was only 4.8%, down by 3.3 percentage points from April; while imports fell by 3.4% year-on-year, an increase of 3.2 percentage points from April. It is noteworthy that exports to the US in May plummeted by 34.6% year-on-year, a 13.6 percentage point expansion from April.
According to the data from the National Bureau of Statistics of the CCP, in May, the CPI (Consumer Price Index) fell by 0.1% year-on-year, the same rate as in April, marking the fourth consecutive month of decline for this indicator. The PPI (Producer Price Index) dropped by 3.3% year-on-year, continuing a decline for 32 consecutive months, also showing the largest decline since July 2023.
American economist Huang Dawei told Epoch Times that the sharp slowdown in export growth and decline in imports indicate a dual crisis facing the Chinese economy.
First is weak external demand. Main markets such as the US and Europe still face inventory pressure, combined with geopolitical risks and the trend of decoupling supply chains from China, leading to a significant shrinkage in Chinese foreign trade orders.
Second is the sluggish internal purchasing power. The decline in imports is not a technical issue but rather a result of pessimistic expectations among enterprises and consumers about the future, causing them to refrain from expansion and consumption. This indicates that domestic final demand, including consumption and investment, has not shown any substantial improvement.
He emphasized that the high degree of external dependence of the Chinese economy and the lack of effective implementation of structural reforms towards internal circulation have led to a situation where when external demand declines, domestic demand cannot take over, resulting in a “stalling of the dual engines.”
Huang Dawei told Epoch Times that the data for May is not incidental, but a concentrated manifestation of the “triple dilemma” of slowing exports, weak domestic demand, and structural deflation in the Chinese economy. In the short term, it is difficult to resolve through stimulus policies. Only by truly unleashing market vitality and rebuilding institutional trust can this structural cold winter be broken.
China issue expert Wang He analyzed that while China’s imports grew by 1.1% year-on-year in 2024, imports in the first five months of this year have dropped by 4.9%, with a 3.4% decline in May. This indicates a significant contraction in imports so far this year. The main reasons for this condition are insufficient domestic demand in the Chinese economy and the simultaneous decline in international commodity prices.
According to data from the CCP’s National Bureau of Statistics, the prices of major commodities imported by China in the first five months of this year, such as iron ore, crude oil, and coal, have seen significant declines. Iron ore import prices fell by 16.4%, crude oil by 4.6%, coal by 22.5%, natural gas by 6.8%, and soybeans by 13.9%. The substantial drop in commodity import prices has led to an overall decline in import volume.
CPI has seen four consecutive months of decline, while PPI has been on a decline for 32 months, marking the largest drop in two years.
Huang Dawei pointed out that the decline in CPI indicates sustained weak consumer demand, unable to support prices, leading companies to lower prices for survival. The decline in PPI represents a comprehensive decline in upstream industrial product prices, reflecting low manufacturing capacity utilization and efficiency. This state of “both consumption and production being cold” is not only due to a lack of short-term momentum but also reflects deep-seated confidence and structural issues.
What does this mean for the Chinese economy? Huang Dawei stated that consumers are hesitant to spend due to deteriorating employment and income prospects; companies are reluctant to invest as products do not sell well and profits are squeezed; government stimulus measures are ineffective due to a breakdown in the transmission mechanism of loose monetary policy.
Wang He also shares a similar view. He said that the long-term simultaneous decline in CPI and PPI indicates a very grim situation for the Chinese economy, which has already entered a state of contraction. Moreover, this is not a temporary issue but rather a long-term trend, with very low chances of reversal.
Wang He believes that the CCP has propelled China’s manufacturing industry to dominate the world through various policy supports and financial subsidies, serving its ambition to dominate the world.
He mentioned that in 2024, China’s economy was already facing significant problems, yet fixed investment in the secondary industry by the CCP increased by a large margin of 12%, with manufacturing investment up by 9.2%. By May 2025, despite the PPI falling for 32 consecutive months, fixed investment in China’s secondary industry continued to increase significantly by 11.7%, with manufacturing investment growing by 8.8%. This signals that in the face of overcapacity, the CCP not only has not adjusted investment structures but also has significantly increased investments in the manufacturing sector.
Wang He believes that through various policy supports and financial aids, the CCP has inflated China’s manufacturing sector to become a giant in the world, making the whole world rely on China’s manufacturing industry. In the event of a war, without the support of manufacturing, it would be difficult for other countries to sustain themselves. Therefore, the entire economic policy of the CCP serves its political ambitions, global ambitions, and ambitions to compete for global dominance.
“Even though China is facing severe overcapacity and declining foreign demand, with the future of the US-China trade war uncertain, in such a situation, the CCP is still investing heavily in its manufacturing industry, developing its industrial sector.”
He mentioned that none of these economic calculations matter to the CCP, as it only considers its political calculations. So from this perspective, the most dominant factor and the main cause of China’s current economic dilemma are the flawed policies of the CCP authorities.
Wang He further stated that the CCP’s global hegemonic ambitions have led to overcapacity, economic deflation, and high US tariffs on China. Now, China’s economy is deeply stuck with no way out.
As for the causes of deflation, Huang Dawei analyzed that China’s current deflation is not simply a monetary issue but a structural deflation, with three main reasons.
First is overcapacity in industries such as steel, photovoltaics, and electric vehicles. A large number of cheap products have no market, leading to cut-throat competition and price reduction.
Second is a demand gap. China’s consumption structure has not successfully transitioned from the model of “real estate + infrastructure + exports” to a genuine “middle-class-driven domestic demand society.”
Lastly, there is a breakdown in investment momentum. Private enterprises are no longer investing, state-owned enterprises lack efficiency, and local government debts restrict investment space.
Huang Dawei believes that to curb deflation, printing money or easing policies will not suffice; it is necessary to achieve three things: first, clear excess production capacity, especially in zombie enterprises; second, truly boost household income and confidence; and third, dismantle institutional barriers in areas such as household registration, education, and healthcare to activate disposable consumption among the urban middle class.
Wang He also analyzed that the persistent overcapacity has led to products not being sold, triggering a pricing war among competitors and causing continuous decline in PPI.
Wang He believes that the Chinese economy must undergo a painful adjustment. He said that unless there is a significant change in China’s entire political landscape that completely reverses current economic policies, the current deflation in China cannot be broken.
Regarding the outlook for the Chinese economy, experts generally believe that there may be some temporary relief in the short term, but the overall outlook for the Chinese economy is very pessimistic, with no way out.
Huang Dawei stated that without a major policy shift or rebuilding of confidence, the Chinese economy will face three major risks. First, exports will continue to be under pressure. Secondly, domestic demand has yet to pick up. Thirdly, deflation and distortion of asset prices will intertwine.
He pointed out that the Chinese economic situation will further deteriorate. Economic growth will slow to below 3%; fiscal revenue pressures will increase, and local default incidents will expand; private enterprises and foreign investments will further withdraw, forming a vicious structure of “internal cooling and external emptiness.”
Wang He also believes that from an economic perspective, China’s economy has no way out.
He said that internally, the CCP’s current economic policies have created overcapacity, an issue that cannot be resolved, and boosting consumption is also an empty promise. These factors combined are deepening China’s future economic predicament. This pit is like a swamp, the more one struggles, the quicker they sink.
As for the external influences on the Chinese economy, he said it depends on the economic and trade negotiations between the US and China, as well as the implementation of Trump’s global tariff policies. If the US-China negotiations collapse and Trump reaches new trade agreements with other countries, forming a tariff alliance, then China’s overall exports will face major problems, akin to breaking a leg in foreign trade.
Wang He mentioned that the entire Chinese political landscape is undergoing subtle yet profound changes. If there is a major event in Chinese politics, such as Xi Jinping stepping down and a new political leader coming in, will there be major adjustments in China’s domestic and foreign policies?
Wang He stated that the Chinese economy is currently in a highly unstable state because the evolution of the Chinese economy and political situation, as well as the prospects of the US-China trade war, are closely intertwined, both with uncertainties.