context: As Beijing shifts from emergency stabilisation toward system repair in early 2026, restoring a 'reasonable' price trajectory has become a key signal of whether recovery is taking hold. CPI and PPI remained subdued through 2025 despite policy support, raising concern that weak demand, property adjustment and excess capacity could entrench deflationary dynamics. Mao Zhenhua's 毛振华 China Chengxin Group chair analysis frames price stabilisation as the decisive macro challenge linking consumption, investment, assets and expectations.
The PRC’s price system remains stuck in an unstable 'buffer phase,' with risks of renewed downward pressure unless policy acts decisively, argues Mao Zhenhua 毛振华 China Chengxin Group chair.
2025 was a year in which prices failed to decisively bottom out. Looking to 2026, Mao is cautiously more optimistic: property’s drag is easing as its investment base shrinks, infrastructure and manufacturing investment may stabilise, and exports and high-tech sectors provide structural resilience. But price recovery, he argues, will not occur automatically.
The core tension lies in the divergence between asset prices and goods and services prices.
First-tier city housing prices saw a pronounced 'catch-down' in 2025, reflecting deep supply-side excess after two decades of expansion. With housing representing the dominant share of household wealth, falling prices have generated a strong negative wealth effect, particularly for younger, highly leveraged households, sharply constraining consumption.
By contrast, equity markets rebounded and stabilised, providing a partial offset through positive wealth and financing effects, though Mao cautions against excessive equity price inflation.
At the same time, CPI and PPI weakness directly reflect an imbalance between 'supply strong, demand weak'. Consumption is constrained by employment and income pressure as well as wealth erosion from housing, while industrial overcapacity has driven price-cutting and 'involution-style' competition.
Mao argues that stabilising prices in 2026 requires an explicit policy anchor.
On targets, he suggests maintaining a two percent CPI as a signalling objective, while treating one percent as a more realistic near-term benchmark.
On policy, both sides must act. Demand-side measures should prioritise repairing household balance sheets, improving income expectations, supporting youth and middle-income consumption, stabilising investment, and consolidating export quality rather than volume.
On the supply side, real estate adjustment is pivotal: halting new land supply, accelerating inventory digestion, repurposing unsold housing, and allowing orderly developer exit to restore pricing power. In industry, capacity reduction, consolidation and support for strategic emerging sectors are needed to rebuild a sustainable price and profit environment.
Without such coordinated action, Mao warns, price weakness risks locking the economy into a self-reinforcing cycle of falling expectations, weak demand and suppressed growth.