China's Deflation Dilemma: Businesses Adapt as Consumers Cut Back

In September 2025, China's economy is facing a unique challenge - deflation. While U.S. companies battle inflation, their Chinese counterparts are struggling with falling prices across various sectors.

The high-end Beijing hotel Beiyuan Grand has resorted to setting up evening stalls on the sidewalk to serve dishes to passersby, as Chinese consumers and businesses cut back on travel, banquets, and events. This shift in consumer behavior has led the hotel's chef to sell around 200 fried pigeons per day, a significant increase from the 60-70 they used to sell in the hotel's restaurant.

Excess capacity in industries like electric vehicles, solar panels, and food delivery services has also contributed to the deflationary environment, leading to what is described in China as "involution" or a race-to-the-bottom competition. Market leaders like Meituan are facing fierce competition from Alibaba and JD.com, all offering coupon discounts to attract customers and drive prices down.

The changing consumer patterns are also evident in the growing demand for second-hand luxury goods. Online vintage products seller Zhuanzhuan has even opened a physical superstore in downtown Beijing to cater to well-off Chinese consumers who now see no stigma in shopping at such establishments to save money.

The Chinese government, concerned about deflation becoming entrenched, has stepped in with warnings and revised regulations to control pricing. However, the deflationary pressures continue to reshape the country's economic landscape, forcing businesses to adapt to the new reality.