Consumer prices in China rose marginally in December, highlighting persistent deflationary pressures in the world’s second-largest economy, which have driven bond yields to record lows.

Consumer prices increased by 0.1 percent last month compared to a year earlier, aligning with Reuters’ average analyst forecast. This marks the slowest growth in nine months and is lower than November’s 0.2 percent rise, as reported on Thursday.

The producer price index, a measure of ex-factory prices, declined by 2.3 percent. This was slightly better than analysts’ forecasts of a 2.4 percent drop and an improvement from November’s 2.5 percent contraction. December’s data indicates that the index has been in the deflationary zone for 28 consecutive months.

The Chinese economy has been grappling with deflation for months, exacerbated by a three-year property crisis that has dampened consumer demand and led to industrial oversupply.

Beijing is expected to achieve its 5 percent economic growth target for 2024 through a combination of price competitiveness in global markets, domestic deflation, and strengthening exports supported by government stimulus measures.

However, analysts caution that this strategy is being undermined by U.S. President Donald Trump’s threat of significant tariffs, which could sharply slow China’s export growth.

Additionally, Beijing has faced challenges in boosting domestic demand, even after a September monetary policy shift aimed at stimulating the stock market and enhancing household wealth through higher stock prices.

The yield on China’s benchmark 10-year government bond has remained at record lows since the start of the year, reflecting investor expectations of slow economic growth and a deflationary outlook.

On Thursday, Chinese stocks displayed mixed performance. The benchmark CSI 300 index was unchanged, while Hong Kong’s Hang Seng index rose by 0.4 percent. Yields on 10- and 30-year government bonds remained stable.

In currency markets, the renminbi was steady at Rmb7.33 against the dollar after the People’s Bank of China set the daily trading rate at Rmb7.19. The renminbi is permitted to trade within a 2 percent range of the central bank’s daily rate.

China’s currency, the renminbi, has dropped to its lowest level in 16 months, as concerns about potential tariff increases by the incoming Trump administration cast doubts on the growth prospects of the world’s second-largest economy.

On Wednesday, the onshore renminbi weakened by 0.1% against the U.S. dollar to Rmb7.34, its weakest level since September 2023. This decline occurred despite the People’s Bank of China maintaining its peg ahead of Donald Trump’s inauguration later this month.

The renminbi is allowed to trade within a 2% range of the daily rate set by the central bank, and the exchange rate is now nearing the lower boundary of this trading band.

The selling pressure on the currency reflects fears that a trade war with the U.S. could harm Chinese exports. Exports have been a critical factor in supporting China’s economic growth amid weak domestic consumer demand and a prolonged property crisis.

“The market is impatient and wants a pop in the renminbi,” said Wee Khoon Chong, senior market strategist at BNY.

On Wednesday, the People’s Bank of China set the daily fixing rate at Rmb7.1887 against the dollar, slightly adjusted from Tuesday’s Rmb7.1879. However, selling pressure on the exchange rate intensified following strong U.S. economic data, which boosted the dollar on Tuesday.

Ju Wang, Head of FX and Currency Strategy for Greater China at BNP Paribas, explained to Financial Times that the selling pressure on the renminbi is “essentially a reflection of the Trump trade.” Wang noted, “The market has been doing this since the U.S. election… A lot has been priced in, but the market doesn’t want to give up.”

Analysts observed that the central bank is attempting to maintain a stable exchange rate while awaiting clarity on Trump’s trade policies. They warned that a slight easing of the fixing could trigger a more significant sell-off in the Chinese currency.

Trump has vowed to impose a 60% tariff on China on his first day in office.

Adding to the concerns, Chinese stocks were sold off during the day. The CSI 300 index, China’s benchmark, and Hong Kong’s Hang Seng index both fell by 1.3%.

South Korean investigators are preparing for a second attempt to arrest Yoon Suk Yeol. A court in South Korea has extended an arrest warrant against the ousted president, investigators announced on Tuesday, paving the way for a renewed effort to detain him after his security service thwarted the first attempt last week.

The Corruption Investigation Office for Senior Officials (CIO) and the National Police Agency, which are jointly investigating sedition charges against Yoon, will determine when to reissue the arrest warrant. Yoon’s legal team contends that the warrant is illegal and is expected to continue resisting arrest.

Prosecutors must prove that Yoon’s declaration of martial law and deployment of troops to the National Assembly in December constituted sedition. Under South Korea’s penal code, sedition is defined as “resorting to violence for the purpose of usurping national territory or overthrowing the constitution.”

Former Defense Minister Kim Yong-hyun has also been charged with sedition. According to the Yonhap News Agency, prosecutors concluded that the mobilization of the army and police to block the National Assembly, along with attempts to arrest lawmakers and seize documents from the National Election Commission without a warrant, were aimed at subverting the constitution. Testimony suggests that these orders were issued directly by Yoon.

In a speech last month, Yoon claimed that he declared martial law as a warning against “anti-state forces” within the opposition Democratic Party, arguing that the move fell within the scope of “state powers.”

The CIO, established to investigate offenses by senior officials, does not typically handle treason cases. It also lacks experience dealing with suspects who physically resist arrest. On Monday, the office requested the police to execute an arrest warrant for Yoon, but the National Police Agency cited legal issues with the request.

The police are preparing for a potential confrontation with the president’s security service and have indicated that they may arrest any personnel who attempt to physically obstruct the execution of the arrest warrant. The head of the security service was summoned for questioning for the third time on Tuesday after ignoring two previous summonses.

The issue has also become a focal point in the impeachment trial at the Constitutional Court, which is tasked with making the final decision following the National Assembly’s successful impeachment motion last month.

The impeachment motion centered on two points: the alleged unconstitutionality of Yoon’s declaration of martial law and accusations that it constituted sedition.

On Friday, the National Assembly’s impeachment investigation committee, composed solely of opposition lawmakers, asked the court to remove the sedition charge from the impeachment grounds to expedite the trial. The committee argued that the sedition issue should be resolved in criminal court.

Yoon’s People Power Party, which largely opposed the impeachment motion, argued that the retroactive amendment should invalidate the motion.

A legal representative from the impeachment committee stated, “There is no change in making all acts of sedition subject to prosecution.”