China's 5% Growth Mask Deeper Economic Unease

China's economy met its official 5% growth target for 2024, but the expansion was uneven, with many citizens experiencing declining living standards, Reuters reports. This lopsided growth raises concerns about deeper structural problems that could intensify in 2025.

The imbalance is characterized by robust industrial output and exports, fueled by factory-gate deflation that makes Chinese goods more competitive globally. However, this success comes at the cost of heightened trade tensions as trade gaps widen. Domestically, falling prices have eroded corporate profits and worker incomes.

"The data China released was different from what most people felt," said Andrew Wang, an executive in the booming electric vehicle sector, to Reuters. "We need to run faster just to stay where we are." Wang's company experienced a 16% revenue drop last year, forcing him to implement job cuts.

Despite the official growth figures, many economists and market analysts express skepticism.

"It seems dubious that China precisely hit its growth target for 2024 at a time when the economy continues to face tepid domestic demand, persistent deflationary pressures, and flailing property and equity markets," said Eswar Prasad, a trade policy professor at Cornell University and a former China director at the International Monetary Fund, to Reuters. "Looking ahead, China not only faces significant domestic challenges but also a hostile external environment."

Analysts warn that if the bulk of Beijing's stimulus continues to flow toward industrial upgrades and infrastructure rather than households, it could exacerbate overcapacity in factories, weaken consumption, and intensify deflationary pressures.

Nomura analysts argue that a truly sustainable growth recovery requires Beijing to implement a more comprehensive strategy, including easing fiscal and monetary policy, addressing the prolonged property crisis, reforming its tax and social welfare systems, and mitigating geopolitical tensions. "Simply put, despite today's sanguine data, now is not the time for Beijing to rest on its laurels," the analysts stated.

The potential for a new trade war with the US under the new administration is exacerbating these concerns. Exporters anticipate higher tariffs to have a more significant impact than during the previous Trump administration, further eroding profits, jobs, and private sector investment.

China's 25-year-olds, facing salary cuts and job losses, are experiencing the brunt of the economic slowdown. "There is a general feeling of unease in the company," said Jiaqi Zhang, a Beijing-based investment banker who has experienced two consecutive years of salary cuts and witnessed several colleagues lose their jobs. "I'm ready to leave at any time, it's just that there's nowhere to go right now."

While the official data shows a rebound in the fourth quarter, economists caution that this may be due to front-loading of shipments to the US ahead of potential tariffs, leading to a subsequent slowdown. "There will be an even bigger need to apply domestic stimulus" this year, stated Frederic Neumann, chief Asia economist at HSBC, to Reuters.

Despite the official growth figures, investors remain hesitant. "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's becoming an irrelevant target."

The disparity between the official growth figures and the economic realities on the ground has fueled skepticism about the reliability of China's official data. A recent commentary by Gao Shanwen, a prominent Chinese economist, highlighting the struggles of young people, was quickly removed from social media after going viral. Gao estimated that GDP growth may have been overstated by 10 percentage points between 2021 and 2023.

Rhodium Group, an independent research firm, also expressed doubts about the official data, estimating that China's economy grew only 2.4%-2.8% in 2024. "If China's actual growth is below headline rates, it suggests there is a broader problem of China's domestic demand that is contributing to global trade tensions," said Local Wright, a partner at Rhodium Group, to Reuters. "Overcapacity would be a far less pressing issue if China's economy was actually growing at 5% rates."