BEIJING (Reuters) – China's economy grew by 5% last year, in line with the government's target, but in an unbalanced way, with many people complaining of deteriorating living standards as Beijing struggles to pass on its industrial and export gains to consumers.
This imbalance raises concerns that structural problems could worsen in 2025, when China plans to perform similar growth by going deeper into debt to counter the impact of expected increases in US tariffs, perhaps on Monday when Donald Trump is inaugurated as president.
December data showed that industrial production far exceeded retail sales, and the unemployment rate rose, highlighting the supply-side strength of an economy running a trillion-dollar trade surplus, but also its domestic weakness.
The export-led growth has been supported in part by a shrinking factory gate that makes Chinese goods more competitive in global markets, but also exposes Beijing to greater conflicts as trade gaps with other countries widen. Within borders, falling prices have affected corporate profits and workers' incomes.
Andrew Wang, an executive at a company that provides industrial automation services to the booming electric vehicle sector, said revenue fell 16% last year, prompting him to cut jobs, which he expects to do again soon.
“The data that China released was different from what most people felt,” Wang said, comparing this year's expectations to achieving the difficulty level on the treadmill.
“We need to run faster just to stay where we are.”
China's National Bureau of Statistics and the Information Office of the State Council, which handles media inquiries, did not immediately respond to questions about doubts about the official data.
“It seems doubtful that China has precisely met its 2024 growth target at a time when the economy is still facing tepid domestic demand, persistent deflationary pressures, and faltering real estate and stock markets,” said Eswar Prasad, a professor of trade policy at Cornell University. Former China Director at the International Monetary Fund.
“Looking to the future, China faces not only significant internal challenges but also a hostile external environment.”
Analysts say that if the bulk of the additional stimulus Beijing has prepared for this year continues to flow toward industrial development and infrastructure, rather than households, it could exacerbate excess capacity in factories, weaken consumption and increase deflationary pressures.
To achieve a “truly sustainable” growth rebound, Beijing needs to ease fiscal and monetary policy, resolve the protracted real estate crisis, reform tax and welfare systems and ease geopolitical tensions, Nomura Bank analysts said.
“Simply put, despite today's optimistic data, now is not the time for Beijing to rest on its laurels,” the analysts said.
“Anxiety”
Chinese exporters expect higher tariffs to have a much greater impact than in Trump's first term, accelerating the movement of production abroad and further shrinking profits, hurting jobs and private sector investment.
Another trade war would leave China more vulnerable than when Trump first raised tariffs in 2018, as it grapples with a deepening property crisis, huge domestic government debt, and 16% youth unemployment, among other imbalances.
Beijing has pledged to prioritize domestic consumption, but has revealed little except a recently expanded trade program that supports purchases of cars, appliances and other goods.
China gave civil servants its first big pay rise in a decade, but financial regulators took sharp pay cuts, as did many in the private sector.
For Jiaqi Zhang, a 25-year-old investment banker in Beijing, 2024 looked like a recession. She said that her salary was reduced for the second year in a row, bringing the total reduction to 30%, and eight or nine of her colleagues lost their jobs.
“There is a general feeling of unease in the company,” said Zhang, who has cut back on buying clothes and eating out. “I'm ready to leave at any time, it's just that there's nowhere to go now.”
Doubt
Data on Friday showed that the world's second-largest economy exceeded economists' expectations for 2024 with growth of 4.9%. The reported fourth-quarter pace of 5.4% was the fastest since early 2023.
“The Chinese economy is showing signs of recovery, led by industrial production and exports,” said Frederick Neumann, chief Asia economist at HSBC.
But he said the rebound may have eased the front-loading of shipments to the United States ahead of any new tariffs, which would inevitably trigger a pushback.
“There will be a greater need for local stimulus enforcement” this year, Newman said.
China and Hong Kong stocks rose slightly, but the yuan remained near its lowest levels in 16 months. Analysts said the weak markets reflect fluctuating confidence in China's future.
“Will investors around the world invest in China now that the interest rate has reached 5%? No,” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis. “So it has become an irrelevant target.”
Beijing has rarely failed to achieve its growth goals. The last time was in 2022 due to the pandemic. It is expected to maintain the roughly 5% target in 2025, but analysts expect growth to slow to 4.5% this year and 4.2% in 2026.
Old doubts about the accuracy of official data have shifted to a higher level over the past month.
A negative comment written by Gao Shanwen, a prominent Chinese economist who spoke of “discouraged youth,” has disappeared from social media. Gao estimated that GDP growth may be overstated by 10 percentage points between 2021 and 2023.
In a note dated December 31, Rhodium Group estimated that the Chinese economy would grow by just 2.4% to 2.8% in 2024, citing a disconnect between the relatively stable official numbers and the deluge of stimulus that has been unleashed about halfway through.
This included May's blockbuster property package, the most aggressive monetary policy easing steps since the pandemic in September, and a 10 trillion yuan ($1.36 trillion) debt package for local governments.
“If China’s actual growth is below headline rates, it suggests there is a broader issue with domestic demand in China that is contributing to global trade tensions,” rhodium partner Local Wright told Reuters.
“Excess capacity would be a much less pressing issue if the Chinese economy was actually growing at 5% rates.”
($1 = 7.3273)
