Smaller Chinese exporters are grappling with the threat of deflation as they engage in relentless price wars amid shrinking demand and rising trade protectionism. Prolonged factory deflation is impacting profit margins, risking industrial output and jobs. China’s producer prices have been falling for 15 consecutive months, leading to a 2.3% drop in industrial profits last year. Smaller exporters are facing challenges in competing with larger rivals, leading to a “rat race” in the industry. Policymakers are urged to address deflation as a higher priority than reaching growth targets, emphasizing the need to stimulate household consumption.