China’s Economy Rallies to Reach Growth Target, 2025 Outlook Remains Uncertain

China’s economy experienced a moderate rebound in the final quarter of 2024, providing the needed push for the country to meet its annual growth target of around 5 percent.

According to data released by the National Bureau of Statistics, China’s real GDP in 2024 reached RMB 134.9 trillion ($18.42 trillion), marking 5 percent year-on-year growth. The economy grew 5.4 percent year-on-year in Q4—a significant jump from the 4.6 percent growth logged in Q3 and the fastest pace in six quarters—in part due to a series of supportive policies introduced since last September, including rate cuts and an RMB 12 trillion debt swap plan.

However, China’s nominal GDP—which accounts for inflation—increased only 4.2 percent, the slowest rate on record, excepting the pandemic years. And analysis from the Rhodium Group suggests China’s real GDP expanded only 2.8 percent in 2024, with growth for 2025 unlikely to exceed 4.5 percent even if all goes according to plan.

Swell in exports helped push growth across finish line, but momentum is unlikely to last

Exports surged in the last few months of 2024, contributing around 30 percent to overall economic growth—the highest share since the 1990s—and bringing the country’s trade surplus to nearly $1 trillion. Much of this surge can be attributed to businesses frontloading their shipments ahead of President Donald Trump’s return to the Oval Office. Trump has threatened to impose tariffs as high as 60 percent on all goods from China early into his second term, but his recent statements indicate a potentially more moderate stance.

While momentum from frontloading shipments may be able to persist through the first quarter of this year, uncertainties cloud China’s longer-term export outlook. Expanded US and EU tariffs, if enacted, could push Chinese exporters to seek more buyers at home—likely to be a challenge as the country grapples with weak domestic demand.

Deflation persisted for the second straight year in 2024, marking China’s longest streak of economy-wide price declines since the 1960s. This was felt most keenly in the industrial sector, with both producer prices and purchasing prices for industrial products falling 2.2 percent from the previous year.

Deflation is expected to persist through 2025, with the GDP deflator—a measure of price changes for all goods and services in an economy over the course of a year—predicted to dip to -0.2 percent. This figure averaged 3.4 percent in the decade before the pandemic. In a deflationary environment, consumers tend to delay purchases out of an expectation that prices will decrease even further in the future.

Property sector remains a drag on recovery but shows signs of stabilizing

Property investment fell 10.6 percent in 2024, marking the steepest decline since recordkeeping for this indicator began in 1987. Property sales dropped 12.9 percent year-on-year, and new construction starts declined 23 percent. Funds raised by China’s property developers declined 17 percent.

While home prices also fell, the rate of decline continued to slow. In December, prices of newly built homes in 70 major cities decreased 0.8 percent from November, the smallest month-on-month decline since June 2023. The year-on-year decline for new home prices was 5.73 percent, and prices of existing homes fell 0.31 percent.

China’s policymakers in September doubled down on efforts to stabilize the real estate market since its crash in 2021, which followed a government-led campaign to crack down on highly leveraged real estate developers. The housing crisis is estimated to have wiped out around $18 trillion in wealth from Chinese households, prompting people to save rather than invest. While Beijing’s supportive policies, which include reduced mortgage rates and eased purchasing restrictions, appear to have moderately improved homebuyer sentiment, they have so far been unable to stimulate a strong recovery.

Sustaining growth in 2025 will depend on boosting domestic consumption

Momentum from year-end improvements will likely be transitory, especially as exports slow and housing market weakness persists. Though official goals will not be announced until March, China is expected to maintain its 5 percent growth target for 2025—an objective that will require policymakers to follow through on their pledge to issue bolder economic policies and boost domestic consumption.

China’s central bank may lower interest rates and reserve requirements in the first quarter of the year to help sustain Q4’s rebound, but monetary loosening will ultimately be constrained by pressure to depreciate the yuan and concerns about capital outflows. As a result, Beijing’s commitment to adopt a “more proactive” fiscal policy will be especially important. Policymakers have reportedly agreed to raise the budget deficit to 4 percent of GDP, which would allow for RMB 1.3 trillion in additional spending.

Authorities are also expected to issue RMB 3 trillion worth of special treasury bonds to finance major projects and new policies, such as recently expanded equipment renewal and consumer goods trade-in policies. While these incentives propelled a 12.3 percent increase in sales of home appliances and audio-video equipment in 2024, overall retail sales growth remained relatively low, increasing only 3.5 percent year-on-year. Household spending accounted for just 44.5 percent of GDP, well below the country’s pre-pandemic level of 55 percent and even further below the 60 to 70 percent levels seen in most OECD countries.

While Q4 data shows improvements in China’s economic recovery, it also suggests that authorities will have their work cut out for them in 2025 and beyond if they are to effectively strengthen domestic demand and advance a more consumption-oriented growth model.