New Delhi, March 11 -- Even though policymakers in Beijing may be putting up a sanguine show, not all is well with China's economy. Its latest official data reveals that prices in China fell 0.7% from a year earlier in February, marking the first time in more than a year that the economy is in the grip of deflation.

Its producer prices also declined 2.2% last month. While cheaper goods may sound good from a consumer perspective, it can be a bigger problem for the economy than high inflation. Deflation leaves consumers with no incentive to spend as they anticipate further price drops, which weakens overall demand and drags economic growth down.

It also makes borrowers wary of credit, as loans to be repaid enlarge in real terms, with low ...