China has been expected to unveil growth targets and stimulus plans during the annual parliament meeting in March. (Reuters pic)
BEIJING: China’s economy ended 2024 on better footing than expected helped by a flurry of stimulus measures, although the threat of a new trade war with the US and weak domestic demand could hurt confidence in a broader recovery this year.
For the full-year 2024, the world’s second-largest economy grew 5%, meeting the government’s annual growth target of around 5%. Analysts had forecast 4.9% growth.
The economy grew 5.4% in the fourth quarter from a year earlier, significantly beating analysts’ expectations and marking the quickest since the second quarter of 2023.
Market reaction
China’s main Shanghai stock market was up 0.3%, while the blue-chip CSI 300 index was 0.4% higher after the data release.
The yuan was little changed against the dollar.
Commentary
“Overall, these are outcomes as expected, and what’s driving them is expected as well that external sector.
“And really to make sure they’re in a strong position to weather the uncertainty around US tariffs, and to make sure consumers don’t get stuck, they need to do more with policy through February and March when we get the congress meeting,” said Elliot Clarke, senior economist at Westpac, Sydney.
“They will cut interest rates a bit further this year and cut triple R to support liquidity. So that all continues, but really the driving force for the growth outlook has to be the fiscal side.
“They can achieve close to 5% growth in 2025. That’s on the assumption that they do take that active stance with policy and it’s on the assumption as we have seen with trade this year they have got themselves into a good position in terms of avoiding US tariffs,” she added.
Meanwhile, Gary Ng, senior economist at Natixis, Hong Kong said the underlying headwind is fiercer than the headline GDP number suggests.
“With strong net export growth and more supportive stimulus, some positive momentum has been brewing in the economy towards stabilisation.
“However, domestic demand has remained weak without a rebound in industrial production and retail sales, especially as the property sector still drags investment,” he added.
Ng said if China wants to achieve a growth rate above 4.5% in 2025, it will need sharper interest rate cuts and more demand-side fiscal policies.
“After reaching the growth target in 2024, the key question for 2025 is where policymakers will set the growth target at the upcoming Two Sessions in March. Our baseline scenario has policymakers electing to set a target of “around 5%” again or at the least “above 4.5%’.
“Setting of such a target despite likely headwinds from tariffs and sanctions would imply that we will see stronger fiscal policy support as well as continued monetary policy easing and would likely be seen by markets as a signal of confidence,” said Lynn Song, chief economist for Greater China, ING, based in Hong Kong.
“We don’t reckon the economy is on a strong footing despite the recent stimulus bump, and more fiscal funds are likely to be deployed at the Budget on March 5 to cushion China’s economy against the Trump (administration’s) policies.
“Focus turns to Trump’s actions on China next week and a 60% tariff on China may prompt the PBOC to cut the 7-day reverse repo next week to boost activity through monetary easing, said Alex Loo, FX and macro strategist at TD Securities, Singapore.
“For 2025, we expect China’s GDP growth at 4.8%, as an around 5% target is likely to be unveiled at the Budget judging by the local government GDP targets,” Loo said.
Andy Ji, Asian FX & rates analyst at ITC Markets, Shanghai said it is largely a mixed bag of economic data today to end 2024, with some data discrepancy and clearly carrying lacklustre momentum into 2025.
“In particular, the full-year pace of retail sales and investment growth, at 3.5% and 3.2%, respectively, remained significantly below the overall headline GDP growth of 5%.
“With US trade policy change looming, this year’s growth target will be closely watched again in March, although too little attention was paid to the big miss in 2024 inflation target of ‘about 3%’, on the back of weak consumer spending” Ji said.
Ben Bennett, AP investment strategist, Legal and General Investment Management, Hong Kong noted that the data is an endorsement of the economic shift that authorities have implemented.
“The property sector is still under pressure and authorities don’t want to see a return to the old days of leverage and big price rises, so investors still need to be patient,” he added.
Meanwhile, Zhiwei Zhang, chief economist at Pinpoint Asset Management, Hong Kong said the batch of macro data shows mixed messages.
“While the GDP growth surprised on the upside in Q4, the unemployment rate rose above 5%. I think the shift of policy stance last September helped the economy stabilise in Q4, but it requires large and persistent policy stimulus to boost economic momentum and sustain the recovery.
“To curb the rise in unemployment rate, fiscal policy must take a more proactive stance,” Zhang said.
“GDP surprises the market at 5.4% year-on-year high on a low base as well as policy stimulus. IP is strong due to external frontloading demand, while retail sales normalise to annual average levels.
“The strong numbers pave the way to about 5% 2025 growth target and offer a chance for China to review the risk side in the economy,” said Zhaopeng Xing, senior China strategist, ANZ, Shanghai.
“Recent liquidity tightness and Vanke saga both suggest macro prudential now carry more weight than growth in the policy agenda ahead of US tariffs.
“We expect the PBOC to ease immediately against the possible tariff shock. Near-term RRR cut before LNY remains possible, but rate cut may delay.” Xing added.
UOB Singapore economist Woei Chen Ho said it’s mainly driven by the industrial sector in December.
“Part of this would be to do with front-loading of production and exports before (US President-elect Donald) Trump comes back to office.
“That may not be sustained going forward, so the outlook for this year is still going to be weak. Retail sales is one of the most important things we should be watching now because it is a reflection of the consumer sentiment, which I think is still rather soft at this point,” Woei said.
“That’s a sigh of relief for Chinese assets, it signals that the stimulus measures of 2024 are having an impact,” said Charu Chanana, chief investment strategist, Saxo, Singapore
She said China markets still face structural headwinds as well as tariffs risks, and the response to those will be the ultimate driver of long-term returns.
“The beat is quite strong on industrial production – perhaps that’s because of the export front-loading to the US before the new administration’s tariffs kick in.
“Property still weak, retail sales comes more from the stimulus impact. Positive signals, but we will need to see how stimulus and tariff risks develop from here for the momentum to sustain,” Chanana said.
Background
China’s economy has struggled for traction since a post-pandemic rebound quickly fizzled out, with a protracted property crisis, weak demand and high local government debt levels weighing heavily on activity.
Policymakers have unveiled a blitz of stimulus measures since last September to revive sputtering growth, and have pledged to do more this year as US President-elect Donald Trump, who has proposed hefty tariffs on Chinese goods, is set to return to the White House next week.
Analysts say the scope and size of China’s moves may depend on how quickly and aggressively Trump implements tariffs or other punitive measures.
China is expected to unveil growth targets and stimulus plans during the annual parliament meeting in March.
The world’s second-largest economy is likely to slow to 4.5% in 2025 and cool further to 4.2% in 2026 amid US tariff pressures, a Reuters poll showed.
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