China’s economy meets official growth ambitions, but many feel deflation By Reuters

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.

The unbalanced growth raises concerns that structural problems could deepen further in 2025, when China plans to perform similar growth by going deeper into debt to counter the impact of an expected US tariff increase, possibly on Monday when Donald Trump is inaugurated as president.

China data in December showed that industrial production far exceeded retail sales and that the unemployment rate rose to higher levels, highlighting the strength of the supply side of an economy that is running a trillion-dollar trade surplus, but also highlighting its domestic weakness.

Export-led growth is partly fueled by factory-gate shrinkage that makes Chinese goods competitive in global markets, but it also exposes Beijing to greater conflicts as trade gaps with rival 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 his 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.”

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.

“Deflationary pressures will dampen investment sentiment,” said Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis, who expects slower growth in 2025.

“It will also be difficult for China to maintain export strength amid the uncertain geopolitical environment.”

“Anxiety”

Chinese exporters expect higher tariffs to have a much greater impact than during Trump’s first term, accelerating the reshoring of production and further shrinking profits, hurting jobs and private sector investment.

A second trade war would find China in a more vulnerable position than it was when Trump first raised tariffs in 2018, as China is still grappling with a deep property crisis and massive domestic government debt, among other imbalances.

So far, Beijing has pledged to prioritize domestic consumption in policies this year, 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 significant pay rise in a decade, although higher estimates measure the overall increase at about 0.1% of GDP. Financial regulators took sharp pay cuts, as did many others in the private sector.

For Jiaqi Zhang, a 25-year-old investment banker in Beijing, 2024 looked like a downturn, after she saw her salary cut for the second time since 2023, bringing the total cut to 30%.

Its equity finance division cut between eight and 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 eating out. “I’m ready to leave at any time, but there’s nowhere to go now.”

Doubt

The world’s second largest economy exceeded economists’ expectations for 2024 with growth of 4.9%. The 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 the last-minute growth rebound may have already been affected by the early loading of shipments to the United States, which will inevitably lead to payment.

“With exports under pressure in 2025, affected by restrictions on US imports, there will be a greater need to implement domestic stimulus,” Newman said.

China and Hong Kong stocks received some support from the data, but the yuan remained near its lowest levels in 16 months, under pressure from falling Chinese bond yields and the threat of tariffs.

Analysts said the market’s muted reaction reflects wavering confidence in China’s future.

But also, long-standing doubts about the accuracy of official data have shifted to a higher level over the past month.

A dismissive comment from Gao Shanwen, a prominent Chinese economist who spoke of “discouraged youth” and estimated that GDP growth may have been overstated by 10 percentage points between 2021 and 2023, disappeared from social media after going viral.

Beijing has rarely failed to meet its growth targets in the past. The last time was in 2022 when the pandemic reduced growth to 3.0%.

In a note dated December 31, Rhodium Group estimated that the Chinese economy grew by just 2.4% to 2.8% in 2024, citing a disconnect between relatively stable official numbers throughout the year and the deluge of stimulus that kicked in about halfway through.

This included the blockbuster property market package in May, 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 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)