China’s economic landscape in 2024 has been a mix of achievement and turbulence. While the government celebrated reaching its 5% growth target, concerns about the sustainability and quality of this growth have come to the forefront. A closer look reveals a troubling imbalance, with industrial and export-driven expansion failing to translate into improved living standards or robust domestic demand. This analysis shifts the focus from growth figures to the underlying structural issues and potential economic risks that may hinder long-term stability.
A Growth Target Achieved, but at What Cost?
China’s 5% GDP growth for 2024 marks a significant achievement, especially in light of global economic uncertainties. Yet, the growth trajectory exposes vulnerabilities in the economy. Industrial output and export performance continue to drive GDP figures, overshadowing retail sales and consumer spending. The rising unemployment rate highlights a disconnect between macroeconomic success and individual prosperity.
One of the primary drivers of this export-led growth is factory gate deflation, which allows Chinese goods to remain competitive on the global stage. However, this competitive edge comes at a cost. Falling prices squeeze corporate profits, leading to job cuts and stagnant wages, thereby exacerbating domestic economic challenges.
Andrew Wang, an executive in the industrial automation sector, summarized the situation aptly: “The data China released was different from what most people felt. We need to run faster just to stay where we are.” His company, despite operating in the booming electric vehicle industry, experienced a 16% revenue decline in 2024, necessitating layoffs.
Domestic Challenges Amid Global Tensions
China’s growth dynamics have also been shaped by its international trade position. With a trillion-dollar trade surplus, the country faces increasing scrutiny and potential conflicts over widening trade gaps with other nations. The prospect of higher U.S. tariffs under Donald Trump’s presidency further complicates China’s economic outlook.
The trade war that began in 2018 has left lasting scars. Now, with the possibility of a “Trade War 2.0,” Chinese exporters anticipate greater challenges. This time, however, the domestic economic environment is less resilient, burdened by a deep property crisis, soaring local government debt, and persistent deflationary pressures.
Economists warn that the planned stimulus measures for 2025, if channeled predominantly into industrial upgrades and infrastructure, may worsen existing overcapacity issues. Without targeted efforts to boost household consumption, these measures risk deepening economic imbalances.
Unequal Gains: The Struggles of Households and Workers
Beijing’s efforts to stimulate domestic consumption have yielded limited results. Initiatives such as subsidizing car and appliance purchases or increasing civil servant salaries by 0.1% of GDP fail to address the broader issues of income stagnation and job insecurity.
For workers like Jiaqi Zhang, a 25-year-old investment banker in Beijing, 2024 felt like a year of economic downturn. After two consecutive salary reductions totaling 30%, Zhang witnessed several colleagues lose their jobs. “There is a general feeling of unease in the company,” she said, reflecting the broader sentiment among urban professionals.
Even as Beijing touts its economic achievements, skepticism about official data is growing. A commentary by economist Gao Shanwen, which questioned the accuracy of GDP figures and highlighted the plight of “dispirited youth,” went viral before disappearing from Chinese social media. This censorship has further fueled doubts about the transparency of economic reporting.
Diverging Perspectives: Official Figures vs. Independent Analysis
While China’s National Bureau of Statistics reported a 5.4% GDP growth in the fourth quarter, independent analyses paint a different picture. The Rhodium Group estimated that actual growth for 2024 ranged between 2.4% and 2.8%. This discrepancy underscores the challenges of reconciling official figures with on-the-ground realities.
Rhodium’s analysis points to a significant disconnect between stable GDP reports and the massive stimulus measures introduced mid-year. These measures included a 10 trillion yuan debt package for local governments, aggressive monetary policy easing, and a property market rescue plan. Despite these interventions, domestic demand remains weak, and overcapacity persists as a pressing issue.
The Path Forward: Prioritizing Structural Reforms
China’s economic strategy for 2025 must address its structural challenges to ensure sustainable growth. Analysts emphasize the need to shift from export reliance to a more balanced growth model driven by domestic consumption and innovation.
Eswar Prasad, a former IMF China director, highlights the precariousness of China’s current economic position. “Looking ahead, China not only faces significant domestic challenges but also a hostile external environment,” he said. The potential for escalating trade tensions with the U.S. and other nations adds urgency to Beijing’s reform agenda.
To achieve lasting stability, China must focus on improving income distribution, enhancing social safety nets, and fostering a more inclusive economic environment. Policies aimed at boosting consumer confidence and reducing inequality will be critical in addressing the domestic weaknesses exposed by the 2024 growth figures.
Investor Confidence and the Global Perspective
International investor confidence in China’s economy has waned despite its headline growth achievement. Alicia Garcia-Herrero, Chief Economist for Asia Pacific at Natixis, dismissed the 5% target as irrelevant to global investment decisions. “Are investors around the world going to invest in China because they hit 5%? No,” she said.
Sliding bond yields, a weakening yuan, and subdued stock market performance reflect broader concerns about China’s economic outlook. For global markets, the question is not whether China can hit its growth targets but whether it can sustain meaningful, balanced growth.
Beyond Growth Targets
China’s economic performance in 2024 underscores the limitations of focusing solely on GDP growth as a measure of success. While the government’s ability to meet its target reflects its policy effectiveness, the uneven distribution of gains and persistent structural issues highlight the need for a more comprehensive approach to economic management.
The road ahead will require bold reforms to address domestic weaknesses, mitigate external risks, and build a more resilient economic foundation. Only by prioritizing the quality of growth over its quantity can China ensure long-term prosperity for its citizens and maintain its position in the global economy.
(Source:www.reuters.com)
A Growth Target Achieved, but at What Cost?
China’s 5% GDP growth for 2024 marks a significant achievement, especially in light of global economic uncertainties. Yet, the growth trajectory exposes vulnerabilities in the economy. Industrial output and export performance continue to drive GDP figures, overshadowing retail sales and consumer spending. The rising unemployment rate highlights a disconnect between macroeconomic success and individual prosperity.
One of the primary drivers of this export-led growth is factory gate deflation, which allows Chinese goods to remain competitive on the global stage. However, this competitive edge comes at a cost. Falling prices squeeze corporate profits, leading to job cuts and stagnant wages, thereby exacerbating domestic economic challenges.
Andrew Wang, an executive in the industrial automation sector, summarized the situation aptly: “The data China released was different from what most people felt. We need to run faster just to stay where we are.” His company, despite operating in the booming electric vehicle industry, experienced a 16% revenue decline in 2024, necessitating layoffs.
Domestic Challenges Amid Global Tensions
China’s growth dynamics have also been shaped by its international trade position. With a trillion-dollar trade surplus, the country faces increasing scrutiny and potential conflicts over widening trade gaps with other nations. The prospect of higher U.S. tariffs under Donald Trump’s presidency further complicates China’s economic outlook.
The trade war that began in 2018 has left lasting scars. Now, with the possibility of a “Trade War 2.0,” Chinese exporters anticipate greater challenges. This time, however, the domestic economic environment is less resilient, burdened by a deep property crisis, soaring local government debt, and persistent deflationary pressures.
Economists warn that the planned stimulus measures for 2025, if channeled predominantly into industrial upgrades and infrastructure, may worsen existing overcapacity issues. Without targeted efforts to boost household consumption, these measures risk deepening economic imbalances.
Unequal Gains: The Struggles of Households and Workers
Beijing’s efforts to stimulate domestic consumption have yielded limited results. Initiatives such as subsidizing car and appliance purchases or increasing civil servant salaries by 0.1% of GDP fail to address the broader issues of income stagnation and job insecurity.
For workers like Jiaqi Zhang, a 25-year-old investment banker in Beijing, 2024 felt like a year of economic downturn. After two consecutive salary reductions totaling 30%, Zhang witnessed several colleagues lose their jobs. “There is a general feeling of unease in the company,” she said, reflecting the broader sentiment among urban professionals.
Even as Beijing touts its economic achievements, skepticism about official data is growing. A commentary by economist Gao Shanwen, which questioned the accuracy of GDP figures and highlighted the plight of “dispirited youth,” went viral before disappearing from Chinese social media. This censorship has further fueled doubts about the transparency of economic reporting.
Diverging Perspectives: Official Figures vs. Independent Analysis
While China’s National Bureau of Statistics reported a 5.4% GDP growth in the fourth quarter, independent analyses paint a different picture. The Rhodium Group estimated that actual growth for 2024 ranged between 2.4% and 2.8%. This discrepancy underscores the challenges of reconciling official figures with on-the-ground realities.
Rhodium’s analysis points to a significant disconnect between stable GDP reports and the massive stimulus measures introduced mid-year. These measures included a 10 trillion yuan debt package for local governments, aggressive monetary policy easing, and a property market rescue plan. Despite these interventions, domestic demand remains weak, and overcapacity persists as a pressing issue.
The Path Forward: Prioritizing Structural Reforms
China’s economic strategy for 2025 must address its structural challenges to ensure sustainable growth. Analysts emphasize the need to shift from export reliance to a more balanced growth model driven by domestic consumption and innovation.
Eswar Prasad, a former IMF China director, highlights the precariousness of China’s current economic position. “Looking ahead, China not only faces significant domestic challenges but also a hostile external environment,” he said. The potential for escalating trade tensions with the U.S. and other nations adds urgency to Beijing’s reform agenda.
To achieve lasting stability, China must focus on improving income distribution, enhancing social safety nets, and fostering a more inclusive economic environment. Policies aimed at boosting consumer confidence and reducing inequality will be critical in addressing the domestic weaknesses exposed by the 2024 growth figures.
Investor Confidence and the Global Perspective
International investor confidence in China’s economy has waned despite its headline growth achievement. Alicia Garcia-Herrero, Chief Economist for Asia Pacific at Natixis, dismissed the 5% target as irrelevant to global investment decisions. “Are investors around the world going to invest in China because they hit 5%? No,” she said.
Sliding bond yields, a weakening yuan, and subdued stock market performance reflect broader concerns about China’s economic outlook. For global markets, the question is not whether China can hit its growth targets but whether it can sustain meaningful, balanced growth.
Beyond Growth Targets
China’s economic performance in 2024 underscores the limitations of focusing solely on GDP growth as a measure of success. While the government’s ability to meet its target reflects its policy effectiveness, the uneven distribution of gains and persistent structural issues highlight the need for a more comprehensive approach to economic management.
The road ahead will require bold reforms to address domestic weaknesses, mitigate external risks, and build a more resilient economic foundation. Only by prioritizing the quality of growth over its quantity can China ensure long-term prosperity for its citizens and maintain its position in the global economy.
(Source:www.reuters.com)
