By The Straits Times | Created at 2025-01-17 15:03:24 | Updated at 2025-01-17 20:41:26
6 hours ago
SHENZHEN – China’s economy grew at its fastest clip in more than a year in the fourth quarter of 2024, buoyed by strong exports and a flurry of stimulus measures aimed at reversing a months-long downward slide.
The 5.4 per cent expansion from October to December enabled China to meet its annual growth target of 5 per cent for the year, according to official data released on Jan 17.
But the sustainability of the rebound in 2025 is not a given, analysts say, as trade tensions threaten to hobble a key driver of the economy – exports, which have compensated for hitherto muted domestic demand.
When asked by reporters in Beijing about the outlook for the year ahead, statistics bureau chief Kang Yi expressed confidence in China’s fundamentals, but warned that “adverse effects brought about by changes in the environment may deepen”.
Outbound shipments were the biggest driver of China’s growth in the fourth quarter, said Mr Gary Ng, senior economist at investment bank Natixis.
This comes as buyers around the world – especially in the United States – front-loaded purchases of Chinese goods amid threats of higher tariffs.
China’s exports grew 10.7 per cent in December, up from November’s 6.7 per cent, data released earlier this week showed, after the US in November elected a president who has pledged steep tariff hikes on Chinese goods.
In 2024, China sold vastly more goods to the world than it bought from abroad, bringing its trade surplus to a record high of nearly US$1 trillion (S$1.37 trillion).
Its manufacturers have been kept busy, in a boost to economic growth. Industrial production rose 6.2 per cent in December, the fastest pace in more than a year.
Factories making electric vehicles and solar cells – export priorities that have also been the subject of trade spats – saw production grow in December by 43.2 per cent and 20.7 per cent respectively.
Domestic consumption, however, remains muted, albeit boosted narrowly in some areas by subsidies. Retail sales growth at 3.5 per cent in 2024 lagged that of household incomes at 5.3 per cent.
Indeed, the acceleration of China’s economy in the fourth quarter coincided with the roll-out of stimulus measures to shore up the flagging economy.
These include lower mortgage rates, cheaper down payments on homes, and a consumer trade-in programme that offers subsidies on selected items such as cars and home appliances.
The property market showed signs of stabilisation in December, but remains a drag on the economy.
Although property prices were still falling, the month-on-month declines for new and existing homes – at 0.08 per cent and 0.31 per cent respectively – were at their smallest since the first half of 2023, noted Mr Lynn Song, chief economist for Greater China at ING Bank.
Savvy shoppers also took advantage of the consumer subsidy scheme to buy items under its remit, spurring retail sales to 3.7 per cent growth in December.
Spending, however, was not up across the board. While sales of home appliances grew 39 per cent, sales of apparel, which is not covered under the scheme, shrank 0.3 per cent.
Overall, growth remains uneven and concentrated in areas that benefited from the policy support measures, said Mr Song.
Economists have also reiterated concerns about deflation, which dampens long-term growth and is more challenging to combat as there are fewer policy levers to do so.
China extended its deflationary streak in the last quarter of 2024, marking the seventh consecutive quarter in which its GDP deflator – a broad measure of price changes in the economy – was negative.
Looking to China’s economy in 2025, analysts note that 2024’s boon – exports – could be this year’s bane.
“The rebound will fade in 2025 with a softer external tailwind and more intense geopolitics,” said Natixis’ Mr Ng.
While businesses abroad could continue stocking up on Chinese imports in the first quarter of 2025, before any tariff hikes are put in place, Maybank economists Erica Tay and Chua Hak Bin said that there would likely be a “payback” later in the year.
These shipments would “sap external demand” from the second half of 2025, regardless of what the US’ trade policy looks like, they said in a note.
In anticipation of a blow to exports, Chinese policymakers have made strengthening domestic demand their top priority in 2025.
They have earmarked 81 billion yuan (S$15.1 billion) to fund an expanded consumer goods trade-in scheme this year, which will cover more items, such as rice cookers and microwave ovens.
More fiscal support, including in the form of higher pensions and medical insurance subsidies, has been pledged to spur consumption. Civil servants have reportedly also received pay hikes.
While China’s more supportive policy stance had helped its economy stabilise in the last quarter of 2024, “large and persistent policy stimulus” will be needed to sustain this recovery, said Dr Zhang Zhiwei, chief economist at Pinpoint Asset Management.
Policymakers will convene in Beijing in March for an annual national parliamentary meeting known as the Two Sessions, where they will set growth targets and release details on fiscal spending.
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