BEIJING (Reuters) – China's economy grew 5% last year, in line with the government's target, but in a negative way, with many complaining about rising living standards as Beijing tries to pass on its industrial and export gains to consumers.
The imbalance raises concerns that structural problems could deepen in 2025, when China is planning similar growth by going deeper into debt to counter the impact of expected US tax hikes, which could happen as soon as Monday when Donald Trump is inaugurated as president.
December data showed industrial production outpacing retail sales, and the unemployment rate hitting record highs, highlighting the strength of the supply side of the economy that drives the trillion-dollar trade surplus, but also its domestic weakness.
Export-led growth has been fueled in part by factory-gate easing that makes Chinese goods more competitive in global markets, but also exposes Beijing to greater friction as trade gaps widen. Within limits, the drop in prices has fed into company profits and employee wages.
Andrew Wang, an executive at a company that provides industrial automation services to the growing electric car sector, said revenue fell 16% last year, prompting him to cut jobs, which he expects to do again soon.
“The data released by China was different from what many people felt,” Wang said, comparing this year's outlook to looking at the level of difficulty on a treadmill.
“We have to run fast to stay where we are.”
The National Bureau of Statistics of China and the Information Office of the State Council, which deals with media inquiries, did not immediately respond to questions about doubts about the official data.
“It seems doubtful that China will accurately reach its 2024 target at a time when the economy continues to face tepid domestic demand, persistent deflationary pressures, and property and equity markets,” said Eswar Prasad, a professor of trade policy at the University. of Cornell and former China director at the International Monetary Fund.
“Looking ahead, China not only faces significant domestic challenges but also a hostile external environment.”
If the bulk of Beijing's additional stimulus this year goes toward upgrading factories and infrastructure, rather than households, it could increase overcapacity in factories, weaken consumption, and increase pressures, analysts said.
Nomura analysts say to restore truly “sustainable” growth, Beijing needs to tighten fiscal and monetary policy, solve the long-term property crisis, reform its tax and social welfare systems and reduce political tensions.
“In short, despite today's sanguine data, now is not the time for Beijing to rest,” analysts said.
'DO NOT SIT'
Chinese exporters expect higher tariffs to have a far greater impact than Trump's first term, accelerating the movement of manufacturing abroad and shrinking profits, hurting jobs and private sector investment.
Another trade war would find China more vulnerable than when Trump started raising tariffs in 2018, as it struggles with a deep property crisis, massive domestic government debt, and 16% youth unemployment, among other imbalances.
Beijing has promised to prioritize domestic consumption, but has revealed little other than a recently expanded trading system that supports purchases of cars, electronics and other goods.
China gave civil servants their first big pay rise in a decade, but financial executives saw pay cuts, as did many in the private sector.
For Jiaqi Zhang, a 25-year-old investment banker in Beijing, 2024 felt like a low. His salary was cut for the second year in a row, reducing the total salary to 30%, and eight or nine of his colleagues lost their jobs, he said.
“There is a general dissatisfaction with the company,” said Zhang, who stopped buying clothes and food. “I'm ready to go anytime, just nowhere to go now.”
PRAYING
Data on Friday showed the world's second-largest economy beating a 2024 growth forecast of 4.9%. Its reported fourth-quarter pace of 5.4% was the fastest since early 2023.
“The Chinese economy is showing signs of recovery, led by manufacturing and exports,” said Frederic Neumann, Asia economist at HSBC.
But the bounce is likely to be mitigated by the pre-loading of shipments to the US before any new tariffs, which will lead to backlash, he said.
“There's going to be a lot more demand for domestic stimulators” this year, Neumann said.
Shares in China and Hong Kong rose slightly, but the yuan held close to a 16-month low. Lowered markets reflect shaky 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 economist for Asia Pacific at Natixis. “So it becomes an irrelevant target.”
Beijing rarely misses its growth targets. The last time was 2022 due to the pandemic. It is expected to maintain around the 5% target in 2025, but analysts predict faster growth to 4.5% this year and 4.2% in 2026.
Long-standing skepticism about the accuracy of official data shifted into high gear last month.
A bearish comment by Gao Shanwen, a Chinese economist talking about “discouraged youth”, has gone viral on social media. The Gao estimated GDP growth may have been exceeded by 10 percentage points between 2021 and 2023.
In the Dec. 31, Rhodium Group has predicted that China's economy will grow by 2.4% to 2.8% in 2024, indicating a disconnect between stable official figures and a flood of stimulus that has emerged around the midpoint.
This includes May's property package, the most aggressive monetary policy austerity measures 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 headline rates, it shows that there is a broader problem of domestic demand in China that is contributing to global trade pressures,” Rhodium Local partner Wright told Reuters.
“Overemployment would be a very pressing issue if China's economy was growing at 5% percent.”
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