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Inside China 21 January 2025

Policy support ongoing

Jeremy Stevens

Whilst the data has improved, Beijing realises that it will be far from plain sailing in 2025
GDP growth surge: China's GDP rose from 4.6% in Q3:24, to 5.4% in Q4:24, exceeding our forecast for 4.9%. Standard Bank’s China Activity Index increased from 4.42%, to 4.73%. Full-year GDP growth was 5%, slightly down from 5.2% in 2023, but still meeting Beijing’s target. However, concerns remain about the accuracy of economic data due to sluggish stimulus efforts and a lack of robust growth.
2024 economic rollercoaster: the year started strongly, at 5.3% growth, but had dropped to 4.6% by Q3:24 due to slow production and consumption. In response to economic slowdowns, the government launched a stimulus package, cutting reserve requirements and providing financial support to local governments.
The bottom line is clear: robust exports and a targeted stimulus effort largely compensated for weak domestic demand. Net exports contributed a staggering one-third of economic growth—the highest share since the late 1990s. Investment also played a part – particularly infrastructure investment in Q4:24. The uptick in industrial production seems primarily driven by a trade-in programme and the rush to have exported ahead of Trump’s inauguration on 20 January. However, the fundamental imbalance that plagued China throughout 2024 remained in December. While industrial production surged, it far outpaced the capacity of households to consume.
Indeed, with external uncertainties looming, it’s critical to mitigate systemic risks and avoid shocks to domestic demand that a decline in real estate or stock markets might provoke. The People’s Bank of China (PBoC) is adopting a proactive stance on maintaining the yuan’s stability. While markets speculate that Beijing may allow the yuan to weaken in response to Trump’s tariffs, the PBoC is wary of potential capital flight. Their goal is to reassure the public that any depreciation of the yuan will be modest, alleviating concerns about the necessity of moving money offshore.
Now, the avowed mission of Beijing in 2025 is to step up levels of domestic consumption to correct deep-seated economic imbalances and maintain the momentum of growth, even if trade relations with the US worsen. The Central Economic Work Conference held in December called for “vigorously spurring consumption,” to deal with weak domestic demand and over-reliance on exports.
The consensus is for Beijing to set its growth target for 2025 at around 5% for a third consecutive year. Many economists are expressing scepticism that this target will be reached because of persistent economic headwinds. We expect GDP growth of 4.5% in 2025, but at the very least, its composition will depend on the degree to which headwinds from tariffs by incoming Trump may materialize, and the degree to which fiscal and monetary support would be required to deliver growth.   

Whilst the data has improved, Beijing realises that it will be far from plain sailing in 2025

GDP growth surge: China's GDP rose from 4.6% in Q3:24, to 5.4% in Q4:24, exceeding our forecast for 4.9%. Standard Bank’s China Activity Index increased from 4.42%, to 4.73%. Full-year GDP growth was 5%, slightly down from 5.2% in 2023, but still meeting Beijing’s target. However, concerns remain about the accuracy of economic data due to sluggish stimulus efforts and a lack of robust growth.

2024 economic rollercoaster: the year started strongly, at 5.3% growth, but had dropped to 4.6% by Q3:24 due to slow production and consumption. In response to economic slowdowns, the government launched a stimulus package, cutting reserve requirements and providing financial support to local governments.

The bottom line is clear: robust exports and a targeted stimulus effort largely compensated for weak domestic demand. Net exports contributed a staggering one-third of economic growth—the highest share since the late 1990s. Investment also played a part – particularly infrastructure investment in Q4:24. The uptick in industrial production seems primarily driven by a trade-in programme and the rush to have exported ahead of Trump’s inauguration on 20 January. However, the fundamental imbalance that plagued China throughout 2024 remained in December. While industrial production surged, it far outpaced the capacity of households to consume.

Indeed, with external uncertainties looming, it’s critical to mitigate systemic risks and avoid shocks to domestic demand that a decline in real estate or stock markets might provoke. The People’s Bank of China (PBoC) is adopting a proactive stance on maintaining the yuan’s stability. While markets speculate that Beijing may allow the yuan to weaken in response to Trump’s tariffs, the PBoC is wary of potential capital flight. Their goal is to reassure the public that any depreciation of the yuan will be modest, alleviating concerns about the necessity of moving money offshore.

Now, the avowed mission of Beijing in 2025 is to step up levels of domestic consumption to correct deep-seated economic imbalances and maintain the momentum of growth, even if trade relations with the US worsen. The Central Economic Work Conference held in December called for “vigorously spurring consumption,” to deal with weak domestic demand and over-reliance on exports.

The consensus is for Beijing to set its growth target for 2025 at around 5% for a third consecutive year. Many economists are expressing scepticism that this target will be reached because of persistent economic headwinds. We expect GDP growth of 4.5% in 2025, but at the very least, its composition will depend on the degree to which headwinds from tariffs by incoming Trump may materialize, and the degree to which fiscal and monetary support would be required to deliver growth.   


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