China’s economy is meeting the official growth target, but many are feeling worse, writes Reuters

BEIJING (Reuters) – China’s economy grew 5% last year, matching the government’s target, but in a patchy fashion, with many people complaining of deteriorating living standards as Beijing struggles to pass on its industrial and export gains to consumers.

That imbalance is raising concerns that structural problems could deepen in 2025, when China plans similar growth by borrowing more deeply to counter the impact of an expected U.S. tariff hike, potentially as early as Monday when Donald Trump is inaugurated as president.

Data from December showed industrial production far outpacing retail sales and the unemployment rate rising, underscoring the supply side of the trillion-dollar trade surplus economy, but also its domestic weakness.

Export-led growth has been helped in part by factory deflation that is making Chinese goods more competitive in global markets, but also exposing Beijing to greater conflict as trade gaps with other countries widen. Within the borders, falling prices threatened company profits and workers’ incomes.

Andrew Wang, CEO of a company that provides industrial automation services to the growing electric vehicle sector, said revenue 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 feel,” Wang said, likening this year’s outlook to raising the weight level on a treadmill.

“We have to run faster just to stay where we are.”

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

“It seems doubtful that China will accurately meet its 2024 growth target at a time when the economy continues to face tepid domestic demand, persistent deflationary pressures and choppy real estate and stock markets,” said Eswar Prasad, a professor of trade policy at Cornell University. and former director of China 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 has lined up for this year continues to flow to industrial upgrades and infrastructure rather than households, it could worsen factory overcapacity, weaken consumption and increase deflationary pressures, analysts said.

Nomura analysts said Beijing needs to ease fiscal and monetary policy, resolve a long-running real estate crisis, reform its tax and welfare systems and ease geopolitical tensions to achieve a “genuinely sustainable” growth recovery.

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

UNEASY

Chinese exporters expect higher tariffs to have a much bigger impact than in Trump’s first term, accelerating the move of manufacturing overseas and further reducing profits, threatening jobs and private sector investment.

Another trade war would make China far more vulnerable than when Trump first raised tariffs in 2018, as it grapples with a deep asset crisis, massive local government debt and 16% youth unemployment, among other imbalances.

Beijing has promised to prioritize domestic consumption, but has revealed little beyond a recently expanded swap program that subsidizes the purchase of cars, appliances and other goods.

China gave civil servants their first big pay rise in a decade, but financial regulators took steep pay cuts, as did many in the private sector.

For Jiaqi Zhang, a 25-year-old investment banker from Beijing, 2024 felt like a fall. Her pay was cut for the second year in a row, bringing her total pay down to 30 percent, and eight or nine of her colleagues lost their jobs, she said.

“There is a general sense of unease in the company,” said Zhang, who has cut back on clothes shopping and dining out. – I’m ready to leave at any time, I just don’t have anywhere right now.

SKEPTICISM

Data released on Friday showed the world’s second-largest economy beat economists’ forecasts for 2024 growth of 4.9%. The reported growth pace of 5.4% in the fourth quarter was the fastest since the beginning of 2023.

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

But the rebound may have been flattered by the loading of US shipments ahead of any new tariffs, which will inevitably lead to returns, he said.

“There will be an even greater need to apply domestic incentives” this year, Neumann said.

Shares in China and Hong Kong rose slightly, but the yuan held close to a 16-month low. Muted markets reflect faltering confidence in China’s outlook, analysts say.

“Are investors around the world going to invest in China because they hit 5%? No,” said Alicia Garcia-Herrero, chief Asia Pacific economist at Natixis. “So it becomes an irrelevant target.”

Beijing has rarely missed its growth targets. The last time in 2022 due to the pandemic. It is expected to maintain a target of roughly 5% in 2025, but analysts predict growth will slow to 4.5% this year and 4.2% in 2026.

Long-standing skepticism towards the accuracy of official data has kicked into high gear in the last month.

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

In a Dec. 31 note, Rhodium Group estimated China’s economy to grow just 2.4%-2.8% in 2024, pointing to a disconnect between the relatively stable official figures and the flurry of stimulus launched around the midpoint.

These included May’s hit real estate package, the most aggressive monetary easing steps since the pandemic in September and a 10 trillion yuan ($1.36 trillion) debt package for local governments.

“If China’s real growth is below nominal rates, it suggests there is a broader problem of Chinese domestic demand contributing to global trade tensions,” Rhodium partner Local Wright told Reuters.

“Overcapacity would be a far less pressing problem if China’s economy was actually growing at 5%.”

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