China’s Economic Growth Surpasses Government Target Of 5%. Why Some Analysts Think There May Be Holes In The Govt Projections?

China’s economy demonstrated resilience in 2024, achieving a full-year GDP growth of 5.0%, according to the National Bureau of Statistics (NBS). This performance aligns with the government’s target of “around 5%” and was boosted by strong fourth-quarter expansion of 5.4%, surpassing market expectations.

Analysts had forecasted 4.9% annual growth, but Beijing’s stimulus measures and a shift in policy stance in late 2023 appear to have driven a stronger-than-anticipated recovery. The fourth quarter outperformed economists’ estimates of 5% and marked an acceleration from 4.6% in Q3, 4.7% in Q2, and 5.3% in Q1.

Zhiwei Zhang, President and Chief Economist at Pinpoint Asset Management, remarked, “The shift in policy stance last September helped stabilize the economy in Q4. However, sustaining this recovery will require substantial and persistent policy interventions.”

Cautionary Note

While the headline figures reflect growth, concerns about structural imbalances and external headwinds remain. The NBS cautioned that challenges from an adverse global environment and insufficient domestic demand persist, urging the implementation of “more proactive and effective macroeconomic policies.”

Despite the fourth-quarter rebound, the full-year growth rate was slower than 2023’s revised GDP growth of 7.4%. Retail sales in December grew by 3.7%, exceeding forecasts of 3.5%, while industrial output rose 6.2%, surpassing expectations of 5.4%. However, these gains indicate a persistent imbalance between domestic production and consumer demand.

Sectoral Insights

Fixed Asset Investment: Grew by 3.2% in 2024, marginally below the projected 3.3%, as real estate investment continued to decline, recording a steep 10.6% drop compared to earlier months.

Urban Unemployment: Increased slightly to 5.1% in December, up from 5.0% in November, indicating labor market challenges.

Income Growth: Urban disposable income rose by 4.4%, lagging overall economic growth, while rural income increased by 6.3%.

Stimulus Measures: China’s Strategy to Revitalize Economic Growth

China has intensified its efforts to stimulate economic growth, introducing a range of policy measures aimed at stabilizing key sectors and boosting domestic demand.

Since late September, authorities have focused on arresting the decline in the real estate market, cutting interest rates, and launching a five-year fiscal package worth 10 trillion yuan ($1.4 trillion) to alleviate local government financing pressures. Additionally, Beijing has expanded programs that incentivize consumers to trade in used cars and home appliances for discounted new ones.

Bruce Pang, Senior Research Fellow at the National Institution for Finance and Development, remarked, “China is banking on a significant infusion of policy stimulus and reforms to energize the economy in 2025, aiming to spur domestic demand and counter disinflationary pressures.”

Policy Stance for 2025

China’s top leadership has pledged “proactive” fiscal measures and a “moderately loose” monetary policy for the current year. While some analysts believe these measures might begin to show results in 2025, they caution that substantial economic impacts could take longer to materialize.

Persistent challenges remain, including a real estate slump and uncertainty over future income, which continue to dampen consumer spending and business confidence. These factors have also fueled deflation concerns. Consumer inflation hovers just above zero, while wholesale prices declined for the 27th consecutive month in December, according to official data.

The government is expected to announce its official 2025 growth targets and additional stimulus measures during the annual parliamentary sessions in March. Economists anticipate that the GDP growth target will remain at approximately 5%, or possibly slightly lower, reflecting a cautious approach amid ongoing economic headwinds.

Adding to domestic challenges, external factors loom large. The inauguration of Donald Trump as U.S. President on January 20 signals potential geopolitical friction. Trump has indicated plans to impose at least 10% additional tariffs on Chinese goods and has appointed officials with hawkish stances on China to key positions.

In a noteworthy demographic development, China’s population declined by 1.39 million in 2024, bringing the total to 1.408 billion, according to the National Bureau of Statistics. This follows a steeper population decline of 2.08 million in 2023, illustrating the country’s long-term demographic challenges.

Is China’s Growth Really at 5%, or Is That What Beijing Wants the World to Believe?

China’s claim of achieving nearly 5% GDP growth in 2024 faces growing skepticism, with analysts suggesting the numbers may not reflect the underlying economic reality.

A report by Logan Wright of the Rhodium Group illuminates contradictions between Beijing’s upbeat narrative and its aggressive economic interventions. While official data claims GDP growth was on target, collapsing property construction, weak local government investment, and subdued consumption painted a different picture. Wright estimates actual growth was closer to 2.4%–2.8%, far below the official figure.

A Fragile Economic Reality

Beijing’s reliance on “authority bias” in its economic data complicates analysis. Official reports emphasize metrics like year-on-year GDP growth and stable employment while downplaying critical indicators such as slowing nominal GDP growth, falling prices, and declining fiscal spending.

Despite claims of steady growth, China’s policymakers have enacted drastic measures, including cutting interest rates, launching a $1.4 trillion refinancing program for local government debt, and calling for “extraordinary” economic support—moves inconsistent with a minor slowdown from 5.2% to 4.8%.

Price Data Tells a Different Story

Evidence of a slowdown is particularly evident in price data.

China’s nominal GDP growth has consistently missed targets, with 2024 figures showing a 4.1% increase against a 7.4% target. Consumer price index (CPI) growth over the past three years has reportedly been around -2%, significantly lower than official estimates. While the IMF has maintained an optimistic outlook, projecting price growth to rebound in 2025, its acceptance of China’s macroeconomic data raises questions about the credibility of these forecasts.

China’s economic recovery remains fragile, heavily reliant on stimulus measures to boost domestic demand and address structural issues. Analysts suggest that even with aggressive policy interventions, achieving sustained growth beyond 3%–4.5% in 2025 will require significant reforms. Without addressing long-standing challenges in the real estate sector, local government debt, and consumption, China’s growth narrative risks being overshadowed by economic realities.

Net Exports

Net exports made a remarkable contribution to China’s GDP growth in 2024, driven by surging exports and subdued imports.

Exports rose 6.7% in value terms year-to-date through November, a significant jump from 0.6% in the same period last year. Adjusted for falling prices, real export growth was even more robust, with export volumes expanding by 11.6% year-on-year in November. This strong performance indicates the role of industrial overcapacity, which incentivized producers to lower prices and push larger volumes abroad.

Imports grew just 2.4% in value terms through November, reflecting weak household consumption and tepid demand for raw materials due to a struggling property and infrastructure sector.

Net Contribution to GDP Growth

The combination of rising exports and flat imports resulted in a net positive contribution to GDP growth. Official data suggest a contribution of 1.2 percentage points (pp) for 2024, marking the third-highest net export contribution this century. Such a contribution was previously surpassed only in 2021, when China’s post-COVID recovery outpaced other economies, and in 2006, following its WTO entry.

Looking Ahead to 2025
While investment has been a drag on growth in recent years, there are reasons to anticipate a stabilization in 2025.

Property Sector
After years of decline, property investment appears to be approaching equilibrium. New construction starts have fallen 68% from their peak levels, aligning with long-term demand estimates. This suggests that construction activity could stabilize, although a full recovery remains unlikely.

Local Government Infrastructure Investment

Aggressive fiscal measures, including expanded special treasury bond issuance, are expected to bolster infrastructure investment. While the Ministry of Finance’s relaxation of project qualification requirements remains uncertain, increased fiscal spending should reverse the current downward trend in infrastructure activity.

Private Investment and Manufacturing Challenges

Private investment is likely to stay weak due to constrained credit growth and persistent deflationary pressures in producer prices. Moreover, trade tensions and rising global protectionism will limit manufacturing investment within China, although Chinese firms may increase investments abroad.

Overall Investment Contribution

In 2025, investment is projected to grow by 2-3% in real terms, contributing approximately 0.5 to 1.0 pp to GDP growth. This marks a modest recovery but remains well below historical averages.

The Chinese government has signaled a stronger fiscal impulse for 2025, aiming to counter weak domestic demand and support economic growth.

Key Drivers of Increased Spending

-Higher Fiscal Deficit Target: The fiscal deficit is projected to rise to 4% in 2025, up from the initial 3% target in 2024.
-Special Treasury Bonds: The issuance of three trillion RMB in special treasury bonds is expected to increase government-led investment.
-Debt Refinancing: Lower interest rates are set to reduce local government debt servicing costs, potentially freeing funds for infrastructure and social services.

However, government-led investment remains heavily reliant on Local Government Financing Vehicles (LGFVs), which prioritize managing existing debt over new investments. Additionally, China’s tax revenue, heavily dependent on corporate income and VAT taxes, declined by 3.3% over the past year due to weaker industrial output and deflationary pressures.

Despite these challenges, government consumption is expected to contribute 0.5 to 1 percentage point (pp) to GDP growth in 2025, supported by increased fiscal spending and stabilizing land sales revenues.

Boosting household consumption was a key agenda item at the December 2024 Central Economic Work Conference. However, substantial headwinds temper the outlook for consumer spending.

Projected Contribution to GDP
Household consumption is expected to grow by 3.5-4.5% in 2025, contributing 1.5-2.0 pp to GDP growth. This represents a continuation of recent trends rather than a substantial acceleration.

China’s trade prospects for 2025 are clouded by geopolitical risks and global market dynamics.

Key Risks

—US Tariffs: Potential new tariffs on Chinese goods could disrupt trade flows, though their scope and enforcement remain uncertain.
—RMB Depreciation: A likely response to tariffs, RMB depreciation, could offset some impacts but risks inflaming trade tensions with other   partners.
—Retaliatory Measures: Beijing may impose tariffs or export restrictions on critical inputs, though these would have limited macroeconomic effects.

The critical variable will be how other trading partners react to sustained Chinese industrial overcapacity and a weaker RMB. If markets remain open, China’s record-high trade surplus could grow modestly, contributing approximately 0.5 pp to GDP growth. However, protectionist measures could disrupt this balance.

China’s policy stance in 2025 reflects a pivot toward short-term counter-cyclical measures aimed at stabilizing growth. GDP growth is projected to rise from 2-3% in 2024 to 3-4%, with a best-case scenario of 4.5% if all measures succeed.

However, these gains should not be mistaken for a long-term recovery. Structural issues, including overinvestment in manufacturing and a slow rebalancing toward a consumption-led economy, remain unaddressed. Achieving sustainable growth will require deeper economic liberalization and structural reforms.

Questions Around the Data

Some analysts question the robustness of the reported growth figures. Revisions to 2023’s GDP growth from 5.4% to 7.4% in late December raised eyebrows, prompting scrutiny over the transparency and methodology of official statistics.

Beijing faces a delicate balancing act – boosting economic momentum without aggravating systemic risks in sectors like real estate. With external uncertainties mounting and domestic consumption yet to reach pre-pandemic levels, the sustainability of the recovery remains in question.

While China’s reported GDP growth for 2024 paints an optimistic picture, underlying challenges suggest a more nuanced reality. Sustained growth will depend on the effectiveness of policy measures in addressing structural weaknesses and revitalizing domestic demand. Investors and global markets will be closely monitoring the next steps from Beijing to gauge the trajectory of the world’s second-largest economy.