China’s economy expanded by 5% in 2024, hitting the government’s official target but marking the slowest growth rate in decades outside of the Covid pandemic years. The sluggish pace underscores the persistent challenges China faces in reigniting its economic engine amid a turbulent global landscape.
According to data from China’s National Bureau of Statistics, growth accelerated moderately through the year, rising from 4.6% in Q3 to 5.4% in the final quarter. However, this momentum was driven largely by a flurry of stimulus measures rolled out by Beijing, including interest rate cuts, subsidies for consumer goods, and incentives for property purchases.
Stimulus Boosts Late 2024 Recovery
The statistics bureau characterized the latter half of 2024 as a “remarkable recovery” fueled by the government’s growth-supportive policies. Industrial output surged 5.8% for the year, bolstered by strong manufacturing performance. But the demand side of the equation remained lackluster, with retail sales inching up just 3.5% despite concerted efforts to spur domestic consumption.
The key question is if we can see consumer confidence bottom out and begin a meaningful recovery. Pessimism has grown quite entrenched as of late, and it will take a lot of effort to break out of the doldrums.
– Lynn Song, China economist at ING
Rebalancing Remains an Uphill Battle
China has long sought to rebalance its economy away from an outsized reliance on exports and toward domestic consumption as the primary growth driver. But the lingering aftershocks of the pandemic, coupled with a protracted property market slump, have dampened consumer sentiment and stymied this strategic pivot.
- Property downturn weighing on consumer confidence
- Covid hangover still impacting household spending
- Global headwinds threaten export demand
Trade Tensions Loom Large
On the external front, China’s growth prospects are clouded by the specter of intensifying trade frictions with the United States. Newly inaugurated US President Trump has signalled his intent to impose punishing tariffs on Chinese imports, with some analysts warning of a possible 60% levy across the board.
In anticipation of these looming duties, US companies raced to ramp up orders from Chinese suppliers in the fourth quarter. This front-loading of demand gave a short-term boost to China’s exports and manufacturing activity but is unlikely to be sustained into 2025 if Trump follows through on his protectionist rhetoric.
Export growth was strong in Q4, reflecting a front-loading of orders from the US in preparation for Trump tariffs… These drivers of growth will find it difficult to sustain this momentum in 2025.
– Sam Jochim, economist at EFG Asset Management
The Path Forward
As China navigates this gauntlet of domestic hurdles and external pressures, policymakers will be forced to walk a tightrope – delivering enough support to stabilize growth and employment without exacerbating long-term financial risks.
Much will hinge on whether Chinese consumers can shake off their malaise and begin to open their wallets with greater gusto. Absent a sustained uptick in domestic spending, even China’s formidable industrial machine may struggle to compensate, leaving the world’s second-largest economy vulnerable to the crosscurrents now roiling the global stage.
Only time will tell if China can successfully navigate these treacherous economic shoals and chart a course toward a more balanced, consumption-powered future. For now, all eyes remain firmly fixed on Beijing as it grapples with the daunting task of steadying the ship in an increasingly turbulent world.
