Update: Last-Quarter Bounce Helps China Hit GDP Target but Challenges Remain

24 Jan 2025

By Qing Na

China’s economy grew 5% in 2024, official data showed Friday, in line with the government’s target of “around 5%.”

The annual figure, published by the National Bureau of Statistics (NBS), surpassed the average estimate of 4.9% in a Caixin survey of economists. The expansion, however, slowed from a pace of 5.2% in 2023.

For the fourth quarter, GDP rose 5.4% year-on-year as stimulus policies unveiled since September buoyed growth. That’s compared with a 4.8% increase in the January-September period.

Overall, the economy made progress while maintaining stability last year, Kang Yi, head of the NBS, said at a press conference in Beijing.

“However, we need to recognize that the unfavorable impacts from external changes have deepened and certain businesses have faced production and operational difficulties amid insufficient domestic demand, showing that economic hurdles persist,” Kang said.

Uneven growth

The world’s second-largest economy had a bumpy ride in 2024. The first quarter saw an expectation-beating expansion of 5.3%, attributed to solid growth in exports and manufacturing investment.

But momentum faltered in the second quarter, with growth slowing to 4.7% year-on-year amid sluggish consumption and a protracted real estate slump even as export growth remained strong. The growth decelerated further in the third quarter to 4.6% — the slowest pace in six quarters.

Expectations of further moderation in GDP expansion due to the property market malaise and slowing investment growth, along with concerns about the impact on exports of anti-dumping investigations and higher tariffs imposed by trading partners, prompted the government to intensify efforts to support the economy starting in late September.

The central bank and other government ministries unveiled a slew of stimulus measures to kickstart the property market, including cuts to banks’ reserve requirement ratio and mortgage rates, lower down payment requirements for buyers of second homes, and more financing for local governments to buy unsold homes and for developers to complete unfinished projects.

The Ministry of Finance announced a 10 trillion yuan ($1.4 trillion) support package in November to help local governments tackle their hidden debt, refinance borrowings at lower interest rates, and free up fiscal resources for investment.

“The economy regained some momentum last quarter, thanks to tailwinds from recent policy easing,” Huang Zichun, a China economist at Capital Economics Ltd., wrote in a note Friday.

“Uneven growth continued in 2024, with strong exports/manufacturing and weak consumption/property,” Macquarie Group Ltd. economists Larry Hu and Yuxiao Zhang wrote in a Friday report. “Manufacturing has replaced property as the main driver of the Chinese economy.”

Despite hitting the annual GDP growth target, deflationary pressure remains a major concern, analysts said. The October-to-December period was the seventh consecutive quarter where the economy’s overall price level, as measured by the GDP deflator, has declined. For the full year, the consumer price index only rose 0.2%, well below the government’s target of around 3%.

“Increased fiscal spending should continue to provide a near-term prop to activity, but this won’t prevent growth from slowing again by the end of this year,” Huang wrote.

Mixed picture

In December, value-added industrial production (IP) rose 6.2% year-on-year, faster than 5.4% the previous month, NBS data show. Meanwhile, retail sales increased 3.7% in December, accelerating from 3% the previous month.

“The recovery of growth in GDP and IP appears to have been driven mainly by the trade-in program and the front-loading of exports ahead of Trump’s inauguration,” economists at Nomura Holdings Inc. led by Lu Ting wrote in a report Friday.

However, they cautioned the rebound in retail sales may not last long. “The special characteristics of durable goods covered by the trade-in program mean strong sales are not sustainable. There may also be substitution effects, as households shift purchases to durable goods due to the subsidies,” they noted.

Year-on-year growth in infrastructure investment rose to 4.4% in 2024, up from 4.2% in the first 11 months of the year. However, growth in fixed-asset investment slowed to 3.2% from 3.3%, growth in manufacturing investment slowed to 9.2% from 9.3%, and the drop in property development investment widened to 10.6%, the sharpest decline since early 2020.

The housing market continued to contract last year, with new-home sales measured by floor space falling 14.1% year-on-year, widening from an 8.2% drop in 2023, NBS data show. Moreover, the year-on-year decline in new housing starts accelerated to 23% in 2024 from 20.9% the previous year.

NBS data show that the surveyed urban youth unemployment rate fell by 0.4 percentage points month-on-month to 15.7% in December, marking the fourth straight decline. The figure, however, is still higher than the 14.9% recorded in December 2023. The overall surveyed unemployment rate in urban areas was 5.1% in December, unchanged from the same period in 2023.

Economists generally believe that policymakers will stick to a GDP growth target of “around 5%” for 2025. But some expressed skepticism that this target will be reached in the face of persistent economic headwinds.

“We expect GDP growth to slow to 4% in 2025 after taking into account … the intrinsic domestic growth barriers — including the troubled property sector — and the strong headwinds to exports under Trump 2.0,” the Nomura economists wrote.

They pointed out that in addition to stepping up monetary easing and fiscal stimulus, Beijing needs to stabilize the property market, reform the fiscal and social welfare systems, and alleviate geopolitical tensions to deliver a sustainable growth recovery.

Fiscal and housing stimulus is key to boosting domestic demand, argued the Macquarie economists.

Contact reporter Qing Na (qingna@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com

caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.

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