I've written recently about China's deflation effects....it's repercussion on South East Asia and immediate impact on future fundings and effects that I see will materialise in Asia.
In case you do not yet realize it, China's "involution" and deflation, driven by a 70% wealth wipeout in its property sector, are exporting economic pain to Singapore and Malaysia through cheap goods and price dumping. Over the next two years, local SME's will face significant margin pressure, leading to a two-speed economy where high-trust, specialized roles outperform traditional retail and manufacturing. Within 5 years after that. Society in Asia and globally will be very very different from how we know it today
"China’s Involution Is Exporting Deflation to ASEAN"
China’s property crash is now Asia’s problem. For 3 years I’ve been warning about China’s deflation. It’s no longer containable now.
The mechanics are simple:
70% of Chinese household wealth is tied to property. After a 40% national property price fall between 2021-2025, that wealth evaporated.
With spending dead at home — retail sales just fell for the first time i've seen in 3+ years — Chinese firms are in “involution”. They fight each other with price wars, then export the war.
What this means for SG and MY in the next 24 months:
1. Price Dumping: China’s export-price index is down 15% since 2022. Furniture grew only 1.9% YoY but volume is flooding ASEAN. Thai car prices are already -6% YoY.
2. SME Margin Collapse: “Excessive competition are eating away at company profits”. Local retailers, manufacturers, and e-commerce sellers can’t compete with subsidized Chinese pricing.
3. Two-Speed Economy: China itself is splitting. Demand for AI chips/data centre equipment is +60%, but “there does not seem to be much demand for anything else”. The same will happen here. High-trust, specialized, AI-validation roles outperform. Traditional retail and manufacturing bleed.
The 5-year view: China is trying to shift from property/investment to consumption, targeting 45% of GDP by 2030. Until that works, the world gets China as the world’s discount warehouse.
Property will shrink from ∼20% to ∼16% of China’s GDP. That’s 5 million jobs at risk. The social and political effects will reshape Asia.
Asian Societies in 2031 will look very different because of this giant's involution process.. The trillion yuan question is: who's prepared?
2. CHARTS / TIMELINE + SECTOR IMPACT MAP
Timeline: China Deflation → ASEAN Impact 2026-2027
Phase Timeline China Side SG/MY Impact
Phase 1: Price Dumping: Q4 2025 - Q2 2026 Export volumes up, prices -15%. AI equipment +60% (Cheap EVs, solar, appliances kill local SMEs. Inflation stays low but wages stall)
Phase 2: Margin Squeeze: Q3 2026 - Q4 2027 Manufacturing “slipping back into deflation” (Two-speed economy. Retail/manufacturing layoffs. Finance, data, compliance roles grow)
Phase 3: Structural Shift: 2028 to 2030 Property falls to 16% of GDP. Consumption push ASEAN forced to diversify. “China+1” becomes “China-in-ASEAN”. Property wealth effect gone ( Nobody alive today has seen this happening, so it's going to be a real shocker!)
Sector Impact Map for Malaysia/Singapore
Most Hit Moderate Risk Opportunity
**Retail, FMCG, Furniture** **Construction, Basic Manufacturing** **Data Centres, AI Services**
**E-commerce sellers** **Tourism reliant on China** **Compliance, ESG, Halal Cert**
**Low-cost manufacturing** **Property developers** **Specialized Engineering**
*3. ACTION LIST: 5 THINGS MALAYSIAN SMEs MUST DO IN 18 MONTHS*
1. Stop competing on price. Compete on trust
Chinese firms can’t export “local service + after-sales + bahasa”. Become the high-trust layer.
2. Attach yourself to AI/data
Every business needs AI validation, data cleaning, compliance monitoring. That’s where the new jobs are.
3. Diversify suppliers AND customers
Don’t be 100% China supply + 100% local demand. Look to ASEAN-as-system, India, Middle East.
4. Hoard cash, not property stock
Property wealth effect is gone. Liquidity wins in a deflationary export wave.
5. Upskill 2 people in your company now
Pick 2 staff to learn: AI prompting, export documentation, ESG reporting. These are tariff-proof skills.
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