In this in-depth economic analysis, Zhu Tian, Vice President, Co-Dean and Professor of Economics at China Europe International Business School (CEIBS), explains why China’s prolonged deflation is historically rare — and what must be done to restore growth momentum.

China has now experienced multiple consecutive years of deflation — something very few major economies have faced in modern history. Professor Zhu characterises today’s economy as “half fire, half ice.”

On one side:

• Rapidly growing sectors such as electric vehicles and AI
• Strong performance from innovative, technology-driven firms
• Global competitiveness in advanced manufacturing

On the other side:

• Weak domestic demand
• Slow industrial output growth over the past decade
• Modest fixed-asset investment
• Insufficient aggregate demand holding back broader recovery

Professor Zhu proposes a bold policy response. Large-scale, unrestricted consumption vouchers funded by trillions of RMB, not hundreds of billions. He argues that previous stimulus measures — roughly 0.1% of GDP — have been far too small relative to the demand shortfall.

Key themes covered:

• China’s deflation crisis explained
• EV and AI sector growth vs. weak consumption
• Aggregate demand shortfall
• Industrial output trends over the past decade
• Fiscal stimulus and consumption vouchers
• Why trillions — not billions — may be required

This discussion is essential for:

• Investors tracking China’s macro outlook
• Policymakers evaluating fiscal stimulus options
• Business leaders assessing domestic demand recovery
• Economists studying deflation dynamics
• Anyone interested in China’s 2026 economic trajectory

Learn more about CEIBS, a global business school cofounded by the European Union and the Chinese government, here.