China Faces Prolonged Deflation as Domestic Demand Slumps, Businesses Turn to Export Markets

Economic

Summary:

Amid a three-year deflationary stretch, weak domestic demand, and growing tensions with the U.S., Chinese companies are accelerating efforts to find new export markets...

Persistent Deflation Undermines Recovery

China’s factory-gate prices continued to fall in September, extending a three-year streak of producer price index (PPI) deflation. According to the National Bureau of Statistics, the PPI fell 2.3% year-on-year in September, while the consumer price index (CPI) dipped 0.3% compared to the same period last year. Although core CPI rose 1% its highest in 19 months economists attribute the increase to temporary factors such as gold prices and appliance trade-in schemes, rather than a genuine consumption rebound.

The country’s weak demand environment reflects the lingering effects of a property market crisis and structural economic issues. The government’s efforts to curb destructive price competition in industries like EVs, solar panels, and logistics have yielded limited short-term gains. Analysts warn that without boosting household spending and transitioning from an investment-led growth model, long-term stability remains uncertain.

IMF Urges Structural Reforms

The International Monetary Fund (IMF) recently echoed this concern, recommending that China expand social welfare spending, resolve the property market turmoil, and reduce excessive industrial subsidies. Analysts worry that China may follow Japan’s path in the 1990s, when a housing bubble collapse triggered long-term deflation and stagnation.

The upcoming Fourth Plenary Session of the Communist Party, expected next week, is anticipated to unveil potential pro-consumption policies in the country’s next five-year development plan beginning in 2026.

Record-Breaking Canton Fair Amid Trade Headwinds

With domestic demand stagnant, over 32,000 Chinese firms have participated in the 138th Canton Fair, seeking foreign buyers. The event attracted over 200,000 international attendees across its 1.55 million m² venue. Despite new U.S. threats to raise tariffs and mutual port fees between the U.S. and China, Chinese exports still grew 8.3% in September.

Exports to the U.S. dropped 27%, but shipments to Europe, Africa, and Southeast Asia surged, partly offsetting losses. Still, market expansion isn't easy. For example, Baide Electronic moved production to Vietnam to avoid U.S. tariffs but now faces a 20% duty there. Meanwhile, companies targeting African markets, like Staxx Material Handling, struggle to match their high-end products with local demand for manual alternatives.

Localization and Government Support as Key Tactics

To improve outreach, many exhibitors at the fair are hiring local language speakers (Russian, Arabic, French) and tailoring packaging for specific regions. The government is also cutting booth fees by 50% and regulating third-party booth rentals to help exporters.

Given excess industrial capacity and declining profit margins, maintaining export momentum is critical for China's economy. The spring edition of the Canton Fair earlier this year saw a 24.1% rise in visitors from BRICS nations outpacing Western interest signaling a shift in China’s global trade strategy.

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Economic

A New Approach to Banker Bonuses

On October 16, the Bank of England (BoE) officially approved changes to its post-financial crisis rules concerning senior banker bonuses. Under the new guidelines, the mandatory deferral period before full bonus payouts will be halved from eight years to four. This shift reflects the BoE’s intention to modernize its regulatory framework and better align with international financial hubs.

According to the updated Prudential Regulation Authority (PRA) rules, a portion of bonuses will now begin to be paid in stages starting from the moment they are approved. The revised policy applies to bonuses awarded in 2025 and to any previously approved but not yet fully disbursed bonuses.

Rationale Behind the Change

Sam Woods, Deputy Governor and head of supervision at the BoE, emphasized that the decision highlights the central bank’s commitment to maintaining the UK's competitiveness in the global financial landscape. He noted that the prolonged deferral periods had become a disadvantage when compared with international markets, where bonus deferral typically lasts between three and five years.

The original extended deferral rule was implemented after the 2007–2009 global financial crisis. Its purpose was to discourage reckless short-term decisions by delaying large cash rewards, thereby protecting the stability of the financial system. However, critics argue that the UK’s stricter standards have eroded its appeal as a financial center, especially in the face of more flexible practices in cities like New York, Singapore, and Frankfurt.

With these changes, the UK aims to reassert itself as an attractive destination for global finance professionals and institutions. The move is expected to increase talent retention, encourage high performance, and balance accountability with market realities.

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Economic

Overview of EU Inflation

According to Eurostat’s latest report, the European Union recorded an average inflation rate of 2.6% year-on-year in September 2025, slightly up from 2.4% in August. However, the Czech Republic bucked the trend with a decrease from 2.4% to 2%, positioning itself among the six EU countries with the lowest inflation.

Eurostat uses the Harmonized Index of Consumer Prices (HICP) to ensure consistent inflation measurement across EU countries. Under this index, Cyprus reported the lowest inflation, virtually unchanged from the previous year. On the other end, Romania experienced the highest inflation rate at 8.6%.

Within the Visegrad Group (V4), the Czech Republic outperformed its peers with the lowest inflation of 2%, compared to Poland (2.9%), Hungary (4.3%), and Slovakia (4.6%).

Key Drivers of Czech Inflation Drop

Data from the Czech Statistical Office (ČSÚ), based on a domestic calculation method, reported a September inflation rate of 2.3%, slightly down from 2.5% in August.

Experts attribute the Czech Republic’s successful inflation control to a significant decline in energy prices, particularly electricity and natural gas. Additionally, the slowdown in food price increases has helped ease consumer price pressure.

While inflation remains a concern for many EU countries, the Czech Republic’s ability to maintain low inflation signals effective economic management in energy and food sectors. This favorable trend may support greater macroeconomic stability and strengthen consumer confidence moving forward.

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Economic

Major Investment Commitment Anchored in EU-Mongolia Cooperation

On the sidelines of the inaugural EU–Mongolia Business Forum held in Ulaanbaatar, the European Investment Bank (EIB), through its development arm EIB Global, formalized a strategic agreement with the Government of Mongolia to mobilize up to €1 billion for clean energy and sustainability initiatives. While not a binding commitment, the funding target reflects the EU’s broader Global Gateway initiative to foster resilient and sustainable infrastructure globally.

The signed memorandum of understanding (MoU) outlines collaboration in developing renewable energy sources especially wind and solar modernizing Mongolia’s electricity grid, and expanding sustainable transport networks. This aligns with Mongolia’s national development blueprint “Vision 2050,” which aims to diversify the energy mix, improve grid reliability, and reduce carbon intensity.

EIB Emphasizes Mongolia’s Renewable Potential

EIB Vice President Teresa Czerwińska, responsible for operations in Mongolia, emphasized the country’s untapped potential in solar and wind power. She stated that partnership under the Global Gateway will not only support Mongolia’s transition to clean energy but also enhance energy security, promote local innovation, and stimulate economic activity through green jobs and private-sector development.

EU Ambassador to Mongolia, Ina Marčiulionyte, welcomed the MoU as a significant step forward in strategic EU-Mongolia relations. She highlighted the synergies between European expertise in clean technology and Mongolia’s natural renewable energy potential, stating that this cooperation could unlock innovation and job creation while strengthening regional energy security.

Mongolia Aims to Ensure Stable, Affordable Power Supply

Deputy Prime Minister Dorjkhand Togmid reinforced the importance of the partnership for national priorities. He underscored the need to diversify energy sources and ensure an affordable, reliable electricity supply for Mongolian citizens. The potential funding from EIB Global is expected to support both public infrastructure upgrades and private sector participation in renewable energy development.

While the MoU focuses on clean energy, it opens avenues for broader collaboration. EIB Global and the Mongolian government plan to identify and co-develop a pipeline of priority projects, not only in energy but also in sectors such as digital infrastructure, healthcare, education, and research consistent with the EU’s Global Gateway agenda.

This strategic framework is part of the EU’s goal to mobilize €300 billion globally by 2027 under the Global Gateway, with the EIB playing a leading role in deploying roughly one-third of this capital. Mongolia’s inclusion in this portfolio enhances its access to long-term EU financing and integration into sustainable development networks.

The EIB’s proposed €1 billion mobilization for Mongolia represents more than financial support it signals a deepening partnership with the EU and a recognition of Mongolia’s strategic role in Asia’s clean energy map. While actual disbursements will depend on project readiness, the political will and international alignment demonstrated by this agreement set a solid foundation for Mongolia’s transition toward a greener, more resilient economy.

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Economic

Political

Strategic Dialogue Amid Strategic Distrust

The United States and China have agreed to resume direct trade negotiations next week in Malaysia, marking a renewed attempt to de-escalate one of the world’s most consequential economic rivalries. The decision follows a phone call between Chinese Vice Premier He Lifeng and US Treasury Secretary Scott Bessent on October 17, which both sides described as “frank and constructive.” US Trade Representative Jamieson Greer also joined the call, indicating that multiple arms of the US trade apparatus are engaged in the process.

While the choice of Malaysia a neutral trade hub with strong ties to both Washington and Beijing reflects strategic positioning, the substance of the dialogue remains clouded by intensifying mutual distrust. The move comes just days before a highly anticipated meeting between President Donald Trump and President Xi Jinping at the APEC summit in South Korea.

Public Accusations Reflect Deep Policy Divides

Even as diplomatic channels reopen, public rhetoric between the two nations has grown more combative. In a statement to the IMF’s executive board, Secretary Bessent sharply criticized China’s economic policies and called on both the IMF and World Bank to adopt a tougher stance. The US has increasingly framed Chinese industrial policy, particularly its state-supported overcapacity and export subsidies, as a distortion to global markets.

Beijing responded with equal force. The Chinese Ministry of Commerce accused the US of undermining the rules-based multilateral trading system and vowed to make greater use of WTO dispute mechanisms. These parallel accusations reflect not just a policy disagreement but a fundamental divergence in how the two powers view global trade governance. While the US demands reform and realignment, China positions itself as a defender of multilateralism, even as it faces allegations of protectionism.

Rare Earths and Strategic Commodities as Flashpoints

The backdrop to these tensions is the increasingly contentious issue of rare earths. Washington has been urging G7 finance ministers to develop a coordinated response to China’s tightening of rare earth exports, which are vital for defense and high-tech manufacturing. EU economic commissioner Valdis Dombrovskis acknowledged that while diversification efforts are underway, replacing China’s dominance in rare earth supply will take years. The urgency of these efforts underscores the broader concern that economic decoupling, particularly in critical materials, could destabilize global supply chains.

Amid escalating threats of retaliatory tariffs and policy constraints, WTO Director-General Ngozi Okonjo-Iweala has urged restraint from both Washington and Beijing. She reiterated that further economic decoupling could slash long-term global output by as much as 7%, highlighting the systemic risks of continued trade fragmentation between the world’s two largest economies.

While there is broad consensus among global economic leaders on the importance of continued dialogue, the underlying strategic competition remains unresolved. The US appears determined to curb China’s influence through tariff tools, export controls, and supply chain diversification. China, in turn, is resisting what it sees as unilateral US pressure and encroachment on its developmental model.

The upcoming talks in Malaysia represent a diplomatic opportunity but not yet a turning point. Even as both parties publicly confirm engagement, the continued exchange of accusations and the lack of concessions on either side highlight the deep-rooted nature of their rivalry. With the APEC summit approaching and economic interdependence increasingly at risk, the path forward hinges not just on dialogue, but on the willingness of both nations to recalibrate their strategic positions in a shifting global order.

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Cryptocurrency

Unprecedented Seizure Exposes Criminal Crypto Infrastructure

On October 14, 2025, the US Department of Justice announced the civil forfeiture of 127,271 Bitcoins worth between USD 14 and 15 billion connected to Chen Zhi (also known as Vincent Chen), a Chinese-born Cambodian businessman and founder of Prince Group. The case marks the largest cryptocurrency seizure in history, linking the assets to a sophisticated web of transnational crimes: cross-border fraud, forced labor, and money laundering, centered in scam compounds in Cambodia and Myanmar. Concurrent actions in the UK involved asset freezes, while multiple jurisdictions cooperated to dismantle Chen’s shadow financial empire.

This seizure highlights a structural shift in law enforcement capabilities, from limited digital visibility to active intervention in digital asset flows. It also illustrates a causal transformation: blockchain, once seen as a shield for criminals, is increasingly being weaponized by law enforcement as a tool for forensic evidence and prosecution.

Anonymity on the Blockchain: Myth Undone by On-Chain Analysis

The case decisively dispels the long-held belief that cryptocurrency transactions are inherently anonymous. While Bitcoin does not require real-name authentication, every transaction leaves a permanent digital trace. Using advanced clustering and behavioral linkage techniques, analysts from Chainalysis traced Chen's network of unhosted wallets wallets outside centralized exchanges by identifying patterns across hundreds of intermediate wallets and triangulating those with known exchange KYC data.

This forensic process transforms blockchain from an opaque transaction layer into a transparent evidence trail. Investigators linked virtual identities to real-world banking information, breaking the supposed anonymity barrier through computational inference and inter-jurisdictional cooperation.

How US Authorities Built the Forensic Web

The investigation began with raw transaction data extracted from the Bitcoin blockchain. Using clustering algorithms, investigators grouped wallet addresses based on behavioral similarity, tracing transaction flow convergence points typically where illicit funds are consolidated or cashed out. These clusters were then cross-referenced with KYC records obtained from crypto exchanges, enabling the unmasking of identities behind unhosted wallets.

Collaboration with private firms and law enforcement bodies across Europe and Asia such as Europol, the UK’s Financial Conduct Authority, and Southeast Asian authorities enabled simultaneous asset freezes, account suspensions, and legal sanctions. Notably, the US Treasury's OFAC also sanctioned individuals and entities linked to the Prince Group, including assets such as London real estate, effectively closing off escape routes for illicit wealth.

Comparison to Previous Crypto Crime Milestones

While earlier cases like the 2013 Silk Road crackdown and the 2016 Bitfinex hack demonstrated the traceability of Bitcoin, they lacked the scale and international coordination seen in the Chen Zhi case. The FTX collapse in 2022 highlighted governance failures but involved minimal on-chain investigative work. In contrast, the Chen operation showcases a comprehensive fusion of blockchain analytics, regulatory enforcement, and global financial intelligence a triangulated model of modern financial crime response.

The case delivers a powerful message to criminal networks: blockchain is no longer a guaranteed shield. The transparency of public ledgers, when paired with evolving digital forensics and multilateral coordination, renders even the most complex laundering structures vulnerable to discovery.

Regulatory implications are already rippling through Southeast Asia, a region heavily implicated in Chen’s network. Authorities are expected to tighten KYC/AML standards for digital assets, formalize cross-border data exchange agreements, and expand state capacity for on-chain surveillance and asset tracing.

Conversely, cybercriminals may accelerate the adoption of obfuscation tools such as privacy coins (e.g., Monero), cross-chain mixing protocols, tumblers, and rapid chain-hopping strategies. However, the Chen case proves that these methods, while disruptive, are not impenetrable. As enforcement tech advances, even obscured transaction histories can unravel under scrutiny.

A New Legal Paradigm for Crypto Enforcement

The seizure not only reflects a maturing international consensus on digital asset governance but also reframes the legal treatment of cryptocurrencies. Rather than being immune to seizure, blockchain assets are increasingly regarded as tangible, recoverable financial instruments. The case further legitimizes the role of crypto evidence in court proceedings and global enforcement frameworks.

The Chen Zhi Bitcoin seizure marks more than a record-setting enforcement action; it represents a pivotal realignment in how blockchain technology intersects with international law. As governments learn to extract evidentiary value from decentralized ledgers, the perception of blockchain as a lawless zone is being replaced by its emerging role as a forensic asset map.

The event signals the dawn of a new enforcement era one where transparency, not opacity, defines the fate of digital crime. In this new paradigm, crypto criminals are no longer hidden in the shadows of pseudonymity; they are walking a trail of immutable proof that ends at the doorstep of accountability.

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Economic

Political

Strategic Delay or Structural Shift?

Since mid-September 2025, severe congestion has paralyzed key crossings along the Kazakhstan–Russia border. At least 2,500 trucks many carrying dual-use goods such as drone components, electronics, and Western-branded items are under intense inspection by Kazakh customs authorities. Reports from Russian media outlets Lenta.ru and Kommersant suggest this is not a temporary backlog but a systemic shift in enforcement aimed at blocking sanction circumvention.

According to Maxim Yemelin, deputy director of SLK Logistics, border checks have intensified to the point where 99% of suspicious shipments are now inspected, extending clearance times from mere hours to several weeks. While official estimates placed the number of affected vehicles at 2,500, sources in the transport sector suggest the actual figure could exceed 7,500 a staggering disruption for Russia's supply chain.

Kazakhstan’s Balancing Act Between West and Moscow

The policy change reflects Kazakhstan’s growing sensitivity to Western pressure, particularly as its economic ties with the United States deepen. In September, President Kassym-Jomart Tokayev finalized a record $4.2 billion locomotive deal with Washington, following direct communication with President Donald Trump. At the same time, Kazakhstan has stopped short of directly challenging Moscow, choosing instead a cautious path of quiet compliance that avoids public confrontation.

This behavior marks a shift from past statements of resistance. Deputy Prime Minister Serik Zhumangarin had earlier vowed not to blindly follow sanctions that harm Kazakhstan’s economy. However, rising fiscal and logistical costs associated with supporting Russia especially amid renewed Ukrainian drone strikes on Russian refineries are pushing Astana to reassess its posture.

Geopolitical Context and Energy Interdependencies

Kazakhstan’s increased enforcement aligns with a broader regional reassessment of dependency on Russia. As Moscow cuts fuel exports to secure domestic supply, countries like Tajikistan and Uzbekistan face severe energy shortages and surging fuel prices. Tajikistan, which imports nearly all its fuel from Russia, saw prices spike to $1.30 per liter, while Kyrgyzstan is now negotiating emergency diesel imports from Moscow.

Kazakhstan itself halted fuel exports to stabilize its domestic market, and Uzbekistan turned to Turkmenistan to compensate. These shifts expose the fragility of Central Asia’s reliance on Russian energy and logistics infrastructure a dependency now complicated by both sanctions and battlefield developments in Ukraine.

Complex Motivations Behind Border Controls

Security expert Jason Jay Smart attributes Kazakhstan’s compliance to its increasing reliance on Western financing. However, Maximilian Hess of the Foreign Policy Research Institute warns against oversimplification, suggesting some of the delays may stem from routine trade frictions rather than a coordinated political agenda. Nevertheless, the timing and scale of the border enforcement coincide too closely with geopolitical shifts to be purely technical.

Kazakhstan’s enforcement of secondary sanctions, particularly targeting goods with potential military application, reflects a broader alignment with the rules-based global order. It also signals to Western institutions that Kazakhstan is not a sanctions evasion hub a reputational risk it can no longer afford.

Implications for Russia’s Logistics and Regional Strategy

For Moscow, the clogged border represents more than a logistical headache. It is a visible indicator that even its closest post-Soviet ally is beginning to hedge its bets. As Russia becomes increasingly dependent on alternative overland trade corridors through Central Asia and China, the prospect of similar compliance among other regional partners poses a strategic vulnerability. The longer the trucks remain stuck, the clearer it becomes that Russia's attempts to bypass sanctions via regional proxies are facing resistance.

The truck backlog at the Kazakhstan-Russia border marks a turning point in Central Asia’s role in the evolving global sanctions landscape. While Kazakhstan has not severed its ties with Moscow, it is quietly repositioning itself in favor of economic prudence and geopolitical flexibility. For the Kremlin, this situation is a sobering reminder that even longstanding allies may adjust course under mounting international pressure particularly when their own economic stability is at stake. As Ukraine’s counteroffensive continues and the West maintains sanctions momentum, Russia’s regional logistics strategy is becoming increasingly constrained, reshaping its influence across Eurasia.

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