China's Industrial Overcapacity and Weak Demand

Li Chen
10 Sep, 2025
Hong Kong

China's benchmark indexes advanced on Wednesday as investors raised expectations for interest rate cuts following a steeper-than-expected decline in inflation. 

The Hang Seng Index increased 1%, and the mainland-focused CSI 300 index edged up 0.2%, and the consumer price index fell more than expected in August. 

China is struggling with an entrenched deflationary trend, as industrial oversupply and weak consumer demand keep prices in check. In addition, muted growth in exports limits businesses from clearing unsold inventories.

The Consumer Price Index in August declined 0.4% from a year ago, according to the latest data released by the National Bureau of Statistics on Wednesday.

The decline in inflation was the steepest in six months following a flat reading in July, driven by the largest fall in food prices in nearly four years. 

The decline in food prices accelerated to 4.3% from 1.6% in July, with broad-based decreases across several categories. 

Core inflation in August, which excludes volatile food and energy prices, increased 0.9% from a year ago. 

In addition, the producer price index decreased 2.9% from a year ago in August, easing from July's 3.6% decline, according to a separate report released by the NBS.

Factory-gate prices in August declined for the 35th consecutive month of contraction, confirming that price pressures are likely to persist for several months with weak demand and persistent overcapacity.

 

China Indexes and Stocks 

The Hang Seng Index increased 0.9% to 26,181.41, and the mainland-focused CSI 300 index rose 0.2% to 4,445.81. 

Alibaba Group Holding increased 2.2% to HK$144.80, Meituan advanced 3.3% to HK$103.0, and Tencent Holdings gained 1.6% to HK$637.0. 

Li Auto added 0.9% to HK$95.90, BYD edged up 0.4% to HK$97.0, and Xpeng Inc. advanced 0.9% to HK$81.55.