BEIJING (Reuters) – China’s economy grew 5% last year, matching the government’s target, but lopsidedly, with many complaining of deteriorating living standards as Beijing is struggling to transfer its industrial and export gains to consumers.
This lopsided growth raises fears that structural problems could worsen further in 2025, when China plans similar growth by going deep into debt to counter the impact of an expected hike in U.S. tariffs, potentially as early as Monday, when Donald Trump will be inaugurated as president.
Chinese data in December showed industrial production well above retail sales and a rising unemployment rate, underscoring the strength of the supply side of an economy running a multitrillion-dollar trade surplus, but also its domestic weakness .
Export-led growth is partly supported by factory-gate deflation, which makes Chinese products competitive in global markets but also exposes Beijing to greater conflicts as trade gaps with rival countries widen. dig. At home, falling prices have reduced corporate profits and workers’ incomes.
Andrew Wang, an executive at a company providing industrial automation services for the booming electric vehicle sector, said his revenue fell 16% last year, prompting him to cut jobs, something he hopes to do again soon.
“The data released by China was different from what most people felt,” Wang said, comparing this year’s outlook to increasing the level of difficulty on a treadmill.
“We have to run faster to stay where we are.”
If the bulk of additional stimulus measures planned by Beijing this year continue to be directed towards industrial modernization and infrastructure, rather than households, it could exacerbate factory overcapacity, weaken consumption and increase deflationary pressures, analysts estimate.
“Deflationary pressures will dampen investment sentiment,” said Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, who expects growth to slow in 2025.
“It will also be difficult for China to maintain the strength of its exports in an uncertain geopolitical environment.”
“MAYNESS”
Chinese exporters expect higher tariffs to have a far greater impact than during Trump’s first term, accelerating the relocation of production overseas and further reducing profits, hurting the economy. employment and private sector investment.
A trade war 2.0 would put China in a much more vulnerable position than when Trump first raised tariffs in 2018, as it still struggles with a deep housing crisis and huge local government debt, among other things. imbalances.
Beijing has so far pledged to prioritize domestic consumption in its policies this year, but has revealed little beyond a recently expanded trade program that subsidizes the purchase cars, household appliances and other goods.
China has given civil servants their first big pay rise in a decade, although highest estimates put the overall increase at around 0.1% of GDP. Financial regulators got big pay cuts, as did many others in the private sector.
For Jiaqi Zhang, a 25-year-old investment banker in Beijing, 2024 was a year of recession, having seen her salary cut for the second time since 2023, bringing the total reduction to 30%.
Its equity finance department cut eight to nine jobs because it had “fewer projects.”
“There is a general sense of unease in the business,” said Zhang, who has cut back on clothing purchases and dining out. “I’m ready to leave at any time, but there’s nowhere to go right now.”
SKEPTICISM
The world’s second-largest economy beat economists’ forecasts of 4.9% growth for 2024. Its 5.4% pace in the fourth quarter was the fastest since early 2023.
“The Chinese economy is showing signs of recovery, driven by industrial production and exports,” said Frédéric Neumann, chief Asia economist at HSBC.
But the last-minute rebound in growth may already have been helped by the initial concentration of shipments to the United States, which will inevitably lead to a return on investment.
“As exports come under pressure in 2025, driven down by US import restrictions, there will be an even greater need for domestic stimulus measures,” Neumann said.
Chinese and Hong Kong stocks received some support from the data, but the yuan remained near a 16-month low, pressured by falling Chinese bond yields and the threat of tariffs.
The calm market reaction reflects wavering confidence in China’s prospects, analysts said.
But also, long-standing skepticism about the accuracy of official data has shifted into high gear over the past month.
A pessimistic comment from Gao Shanwen, a prominent Chinese economist who spoke of “disheartened youth” and estimated that GDP growth could have been overestimated by 10 percentage points between 2021 and 2023, disappeared 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 caused growth to drop to 3.0%.
In a December 31 note, Rhodium Group estimated that China’s economy grew by only 2.4% to 2.8% in 2024, highlighting the gap between relatively stable official figures throughout the year and the flood of stimulus measures triggered halfway.
This included May’s blockbuster property market plan, the most aggressive monetary policy easing measures 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 overall rates, that suggests there is a broader Chinese domestic demand problem that is contributing to global trade tensions,” Rhodium partner Local Wright said.
“Overcapacity would be a much less pressing problem if the Chinese economy grew at 5%.”
($1 = 7.3273)
