After 2 decades of hot growth, China's economy has begun to slow down, even arguably entering a stalemate after the real estate crisis and the Covid pandemic. China is the only major economy in the world that has entered a period of disinflation. The cause is the decline in consumption stemming from the public's loss of confidence in the financial system. The People's Bank of China (PBOC) is continuously using monetary tools to stimulate the economy.
With PBOC's loose monetary policy, alongside tightening policies in Western economies, China is struggling with the impossible trinity: fixed exchange rate - independent monetary policy - free capital flows. In reality, China is straining to defend the CNY exchange rate, prevent capital outflows, and cannot maintain an independent monetary policy to let the market freely adjust supply-demand.
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