China’s economy is meeting its official growth target, but many are worried, according to Reuters

BEIJING (Reuters) – China’s economy grew 5 percent last year, matching the government’s target, but many complain that living standards have worsened as Beijing struggles to pass on industrial and export profits to consumers.

China has raised concerns that structural problems could increase in 2025, as it projects similar growth performance to cushion the impact of expected US tariff hikes.

December data showed that industrial production far outpaced retail sales, while the unemployment rate rose, underscoring strength on the supply side of an economy running a trillion-dollar trade surplus, but also domestic weakness.

Export growth has been supported in part by factory-gate deflation, which has made Chinese goods more competitive in global markets but widened trade gaps with other countries, exposing Beijing to more friction. Within the frontier, falling prices hurt corporate profits and workers’ incomes.

Andrew Wang, CEO of a company that provides industrial automation services for the growing electric vehicle sector, said revenue fell 16 percent last year, prompting layoffs, which are expected to take effect soon.

“The data China released was different from what most people felt,” Wang said, comparing this year’s outlook to showing the level of difficulty on a treadmill.

We have to run fast just to stay where we are.

China’s National Bureau of Statistics and the State Council Information Bureau, which handled media inquiries, did not immediately respond to questions about the official data.

Iswar Prasad, a professor of trade policy at Cornell University, said: “It seems doubtful that China will hit its 2024 growth targets at a time when the economy continues to face rapid domestic demand, persistently volatile pressures, and asset and equity markets.” Former China Director at the International Monetary Fund.

“Looking ahead, China not only faces significant domestic challenges, but also a hostile external environment.”

If most of the extra stimulus Beijing receives this year goes to industrial reforms and infrastructure rather than domestic spending, it could strain factory capacity, weaken consumption and add to price pressures, analysts say.

To deliver a “truly sustainable” growth recovery, Nomura analysts said Beijing needs to ease fiscal and monetary policy, address a lingering asset crisis, reform its tax and social welfare systems and ease geopolitical tensions.

“Simply put, despite today’s sanguine data, now is not the time for Beijing to rest on its laurels,” the analysts said.

‘don’t bother’

Chinese exporters expect higher tariffs than during Trump’s first term, accelerating exports and further eroding profits, hurting jobs and private sector investment.

Trump started another trade war in 2015. It will make China more vulnerable when they raise tariffs in 2018.

Beijing has pledged to prioritize domestic consumption, but has said little other than subsidies for purchases of cars, furniture and other goods from a recently expanded trade program.

China gave its civil servants bigger paychecks for the first time in a decade, but financial regulators took big pay cuts, many in the private sector.

For Jiaqi Zhang, a 25-year investment banker in Beijing, 2024 felt like a fall. Her salary has been cut for the second year in a row, bringing the total salary to 30%, and eight or nine of her colleagues have lost their jobs, she said.

“There is a general sense of nervousness in the company,” said Zhang, who had stopped buying clothes and eating out. “I’m ready to go anytime, because I have nowhere to go now.”

Skepticism

Data on Friday showed the world’s second-largest economy beat economists’ forecast of 4.9 percent growth in 2024. The fourth quarter’s 5.4% pace was reported to be the fastest since early 2023.

“China’s economy is showing signs of recovery, driven by industrial production and exports,” said Frederick Neumann, HSBC’s chief Asia economist.

But progress could be hampered by front-loading of U.S. exports ahead of any new tariffs, which would inevitably lead to a return to tariffs, he said.

“There will be more interest in implementing domestic stimulus this year,” Newman said.

Chinese and Hong Kong stocks rose slightly, but the yuan lingered at a 16-month low. Markets bought bought confidence in China’s outlook, analysts said.

“Are investors around the world going to invest in China? So it’s becoming an irrelevant target,” said Alicia Garcia-Herrero, Asia Pacific chief economist at Natixis.

Beijing has rarely lost sight of its development goals. The last time was in 2022 due to the pandemic. It is expected to hold its roughly 5% target in 2025, but analysts predict growth will slow to 4.5% this year and 4.2% in 2026.

Long-standing doubts about the accuracy of official data shifted into high gear last month.

Prominent Chinese economist Gao Shanwen’s thoughtful comments about “scary youth” have gone viral on social media. GAO estimates that GDP growth could increase by 10 percentage points between 2021 and 2023.

In a December 31 note, Rhodium Group estimated that China’s economy would grow by only 2.4%-2.8% in 2024, reflecting the relationship between relatively calm official figures and the flood of stimulus around the midway mark.

This includes a May asset package that eases the most aggressive monetary policy since the outbreak of the outbreak in September, and a 10 trillion yuan ($1.36 trillion) debt package for local governments.

“If China’s actual growth is below the headlines, it points to a broader problem with China’s domestic demand contributing to global trade tensions,” Rhodium partner LocalRite told Reuters.

“If China’s economy is really growing at a 5% rate, overcapacity will be much less urgent.”

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