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The following abstract is from the WSJ article China Slips Into Deflation in Warning Sign for World Economy, published in 2023: ...The danger is that
The following abstract is from the WSJ article "China Slips Into Deflation in Warning Sign for World Economy," published in 2023: "...The danger is that if the expectation of falling prices becomes entrenched, it could further sap demand, exacerbate debt burdens and even lock the economy into a trap that will be hard to escape using the stimulus measures Chinese policy makers have traditionally turned to. Deflation is particularly risky for countries with high debt burdens such as China, since it will add to debt servicing costs for borrowers and likely prompt them to spend and invest less." Why, according to the information provided above and your opinion, the Chinese government's approach of downplaying the risks of deflation and stalling growth could backfire and make it even harder to pull the economy out of its downward spiral? (Hint think about the effects of expansionary fiscal policy, in an environment where there is deflation and high debt among other things)
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