In an effort to stimulate its persistently declining economy, the Chinese government has recently rolled out a number of fiscal and monetary measures. Although China's and Hong Kong's stock markets enjoyed a brief boom under this loose monetary policy, so long as China's industrial and economic structure and investment environment remain unchanged, this stock-market rally can only be fleeting. In other words, given that the trend of China's economic decline cannot be reversed, there is little likelihood that the market capitalization of Chinese listed companies will meaningfully increase. As for China's real-estate market, this column has already explained, in the article "It Is Reasonable to Expect Chinese Property Prices to Fall Further," that the People's Bank of China's stimulus measures targeting real estate should be unable to reverse the ongoing decline in Chinese property prices. To be fair, this column's pessimism about China's economic outlook stems mainly from the deflation present in the Chinese economy. Of course, many people often compare this to Japan's past experience of deflation and insufficient demand. But beyond the great difference in the level of economic development between China and Japan, the difference in political systems between democracies and communist states will also cause economic development to diverge sharply — a point emphasized by the 2024 Nobel laureates in economics, Daron Acemoglu, Simon Johnson, and James A. Robinson, who stressed that political and economic institutions are closely tied to national prosperity. Since Deng Xiaoping's reform and opening up, changes to China's economic system gradually improved the Chinese economy and steadily raised living standards for its people, to the point that major countries around the world came to see China as an important export market. However, since President Xi Jinping came to power, the trustworthiness of China's economic and legal systems has fallen sharply, which in turn has caused foreign investment in China to keep declining. China's economic decline is therefore closely tied to Xi Jinping's damage to the legal system and the economic environment. The Chinese government's damage to market mechanisms has caused Chinese consumer demand to keep shrinking. According to economic data released by China's National Bureau of Statistics on the 13th of this month, China's Consumer Price Index (CPI) rose by 0.4% year-on-year in September, lower than in August. Although China's CPI has grown somewhat better this year than last, the scale of price increases remains extremely limited. With CPI growth so low, the year-on-year rate could turn negative if the price of any product with a large weight in the consumption basket falls. In other words, domestic consumption power in China is currently insufficient. When consumers hold a pessimistic economic outlook, it becomes very difficult for government policy to have any effect. In addition, the Producer Price Index (PPI) fell 2.8% year-on-year in September, the largest decline in six months. China's PPI has now recorded 24 consecutive months of negative growth, showing that factory-gate prices for Chinese products keep falling — a phenomenon closely tied to China's problem of overcapacity. Finally, faced with insufficient demand in China, many economic organizations and forecasting agencies have already stated one after another that they do not believe China's economic growth rate can reach the 5% target. However, as the People's Bank of China and the Ministry of Finance have successively announced loose monetary and fiscal policies, it remains possible that the Chinese government could stimulate the economy by pumping more capital into the market, thereby pushing China's economic growth to the 5% target. But as Adam Smith, the father of economics, pointed out, whether a country's economy can sustain growth depends on the level of its productivity. The higher a country's productivity, the better its economic growth performance will be. Yet if government policies fail to raise productivity or boost research and development, then the government's expansionary policies may leave behind nothing but the negative impact of rising debt. Therefore, in judging whether China's economy is doing well or poorly, we must, in addition to watching changes in economic figures, also pay attention to the opportunity cost of the policies being implemented, in order to form a more accurate judgment of China's economic outlook.