BEIJING (Reuters) -China’s economy grew 5% last year, matching the government’s target, but in a lopsided fashion, with many people complaining of worsening living standards as Beijing struggles to transfer its industrial and export gains to consumers.
The unbalanced growth raises concerns that structural problems may deepen further in 2025, when China plans a similar growth performance by going deep into debt to counter the impact of an expected U.S. tariff hike, potentially as soon as Monday when Donald Trump is inaugurated as president.
China’s December data showed industrial output far outpacing retail sales, and the unemployment rate ticking higher, highlighting the supply-side strength of an economy running a trillion-dollar trade surplus, but also its domestic weakness.
The export-led growth is partly underpinned by factory gate deflation which makes Chinese goods competitive on global markets, but also exposes Beijing to greater conflicts as trade gaps with rival countries widen. Within borders, falling prices have ripped into corporate profits and workers incomes.
Andrew Wang, an executive in a company providing industrial automation services for the booming electrical vehicle sector, said his revenues fell 16% last year, prompting him to cut jobs, which he expects to do again soon.
“The data China released was different from what most people felt,” Wang said, comparing this year’s outlook with notching up the difficulty level on a treadmill.
“We need to run faster just to stay where we are.”
If the bulk of the extra stimulus Beijing has lined up for this year keeps flowing towards industrial upgrades and infrastructure, rather than households, it could exacerbate overcapacity in factories, weaken consumption, and increase deflationary pressures, analysts say.
“Deflationary pressure will dampen investment sentiment,” said Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, who expects slower 2025 growth.
“It will also be hard for China to keep the export strength amid the uncertain geopolitical environment.”
‘UNEASE’
Chinese exporters expect higher tariffs to have a much greater impact than during Trump’s first term, accelerating a reshoring of production abroad and further shrinking profits, hurting jobs and private sector investment.
A trade war 2.0 would find China in a much more vulnerable position than when Trump first raised tariffs in 2018, as it still grapples with a deep property crisis and huge local government debt, among other imbalances.
So far, Beijing has pledged to prioritise domestic consumption in this year’s policies, but has revealed little apart from a recently-expanded trade-in programme that subsidises purchases of cars, appliances and other goods.
China gave civil servants their first big pay bump in a decade, although the higher estimates measure the overall increase at roughly 0.1% of GDP. Financial regulators got steep wage cuts, as have many others in the private sector.
For Jiaqi Zhang, a 25-year-old investment banker in Beijing, 2024 felt like a downturn, having seen her salary trimmed for a second time since 2023, bringing the total reduction to 30%.
Her equity finance department slashed eight to nine jobs because it had “fewer projects.”
“There is a general feeling of unease in the company,” said Zhang, who has cut back on buying clothes and dining out. “I’m ready to leave at any time, just that there’s nowhere to go right now.”
SCEPTICISM
The world’s second-largest economy beat economists’ 2024 forecast of 4.9% growth. Its fourth-quarter 5.4% pace was the quickest since early 2023.
“China’s economy is showing signs of revival, led by industrial output and exports,” said Frederic Neumann, chief Asia economist at HSBC.
But the last-minute bounce in growth may already have been flattered by front-loading of shipments to the U.S., which will inevitably lead to a pay-back.
“As exports come under pressure in 2025, dragged lower by U.S. import restrictions, there will be an even bigger need to apply domestic stimulus,” Neumann said.
China and Hong Kong shares drew some support from the data, but the yuan lingered near 16-month lows, under pressure from sliding Chinese bond yields and the tariff threat.
The quiet market reaction reflects wavering confidence in China’s outlook, analysts said.
But also, long-standing scepticism about the accuracy of official data has shifted into higher gear over the past month.
A bearish commentary by Gao Shanwen, a prominent Chinese economist who spoke of “dispirited youth” and estimated that GDP growth may have been overstated by 10 percentage points between 2021 and 2023, vanished from social media after going viral.
Beijing has rarely missed its growth targets in the past. The last time was in 2022 when the pandemic knocked growth to 3.0%.
In a Dec. 31 note, Rhodium Group estimated that China’s economy only grew 2.4%-2.8% in 2024, pointing to the disconnect between relatively stable official figures throughout the year and the flood of stimulus unleashed from about the mid-way mark.
This included May’s blockbuster property market 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 in November.
“If China’s actual growth is below headline rates, it suggests there is a broader problem of China’s domestic demand that is contributing to global trade tensions,” Rhodium partner Local Wright told Reuters.
“Overcapacity would be a far less pressing issue if China’s economy was actually growing at 5% rates.”
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