This is all unfolding as China embarks on what many observers are calling the "second trade war" with the United States. Consumer activity has slowed in recent years, weakening the pricing power of businesses. The inability to raise prices without losing customers is a classic sign of deflationary pressure — a clear drag on economic momentum. One broader behavioral shift is also emerging: post-COVID, Chinese consumers are increasingly favoring saving over spending.

The real estate industry, a major pillar of China’s economy, is in crisis. Real estate investment has dropped by about 10% year-over-year, signaling ongoing stress in the sector. In response, the Chinese government has loosened monetary policy — primarily by extending loans — in an attempt to revive the housing market. While this move increases public spending, its ultimate success remains uncertain.

Foreign investment in Chinese real estate has not returned to pre-crisis levels. The future of China’s current policy approach rests on two scenarios:

1. The Optimistic Path: The government manages to restore investor confidence and bring real estate investment back to normal levels within two years. One year has already passed, leaving about a year to evaluate this outcome.
   
   

2. The Pessimistic Path: China could spiral into a prolonged period of stagflation, facing challenges similar to those Japan experienced after the Plaza Accord. For now, the situation remains fluid — not yet a full-blown crisis, but still unresolved. Stimulus measures have yet to make a meaningful dent in labor market recovery or workforce expansion.

These factors demand a comprehensive reevaluation of China’s financial systems and income redistribution mechanisms. The government’s current strategy — easing monetary policy through business loans and housing support — reflects this urgent need.