BEIJING (Reuters) – China’s economy grew 5% last year, matching the government’s target, but in a skewed fashion, with many people complaining of deteriorating living standards as Beijing struggles to transfer industrial gains and consumer exports.

Unbalanced growth has raised concerns that structural problems could deepen in 2025, when China plans to match its growth performance by entering into debt to offset the impact of an expected increase in tariffs on the US, which could be on Monday when Donald Trump is inaugurated as president.

China’s December data showed industrial output outpacing retail sales, and the unemployment rate rising, underscoring supply-side strength in an economy running a trillion-dollar trade surplus. but also its domestic weakness.

Export-led growth is partly underpinned by factory-gate deflation that makes Chinese goods competitive in global markets, but also exposes Beijing to more conflicts as trade gaps widen. in rival countries is expanding. Within the borders, falling prices hurt corporate profits and workers’ incomes.

Andrew Wang, an executive at a company that provides industrial automation services for the booming electric vehicle sector, said his revenue fell 16% last year, prompting him to cut back. of jobs, which he hopes to do again soon.

“The data released in China is different from what most people feel,” Wang said, comparing this year’s outlook to comparing the difficulty level of a treadmill.

“We have to run faster just to stay where we are.”

If much of the additional stimulus Beijing has lined up for this year continues to flow toward industrial and infrastructure improvements, rather than households, it could exacerbate overcapacity in factories, dampening consumption. , and will increase deflationary pressures, analysts say.

“Deflationary pressure will dampen investment sentiment,” said Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, who expects slower growth in 2025.

“It will also be difficult for China to maintain export strength amid an uncertain geopolitical environment.”

‘NONE’

Chinese exporters expect the higher tariffs to have a bigger impact than during Trump’s first term, prompting a shift in production overseas and further shrinking profits, hurting jobs and investment in the private sector.

A trade war 2.0 would find China in a much weaker position than when Trump first raised tariffs in 2018, as it still faces a deep property crisis and massive debt. in local government, among other imbalances.

So far, Beijing has promised to prioritize domestic consumption in policies this year, but has revealed little other than a newly expanded trade-in program that subsidizes the purchase of cars, appliances and other things.

China gave civil servants their first big pay rise in a decade, although higher estimates pegged the total increase at roughly 0.1% of GDP. Financial managers have taken severe pay cuts, as have many others in the private sector.

For Jiaqi Zhang, a 25-year-old investment banker in Beijing, 2024 felt like a downturn, seeing his salary cut for the second time since 2023, bringing the total reduced by 30%.

His equity finance department cut eight to nine jobs because it had “smaller projects.”

“There’s a general sense of unease in the company,” Zhang said, cutting back on shopping for clothes and eating out. “I’m ready to leave at any moment, with nowhere to go now.”

SKEPTICISM

The second largest economy in the world beat the forecast of economists in 2024 of 4.9% growth. The fourth quarter’s 5.4% move was the fastest since early 2023.

“The Chinese economy is showing signs of revival, led by industrial output and exports,” said Frederic Neumann, HSBC’s chief Asia economist.

But the last-minute boost to growth may have flattered the front-loading of US cargo, which inevitably led to a charge.

“As exports come under pressure in 2025, dragged down by US import restrictions, there is a greater need to use domestic stimulus,” said Neumann.

Shares in China and Hong Kong got some support from the data, but the yuan remained near a 16-month low, under pressure from sliding Chinese bond yields and the threat of tariffs.

The market’s muted reaction reflected wavering confidence in China’s outlook, analysts said.

But again, long-standing skepticism about the accuracy of official data shifted into higher gear last month.

A bearish comment by Gao Shanwen, a famous Chinese economist who talks about “weakened youth” and estimates that GDP growth may be overstated by 10 percentage points between 2021 and 2023 , disappeared from social media after going viral.

Beijing has rarely missed its growth targets in the past. The last time was in 2022 when the pandemic increased by 3.0%.

In a note on December 31, Rhodium Group estimated that the Chinese economy will grow only 2.4%-2.8% in 2024, pointing to the disconnect between the relatively strong official figures throughout the year and the flood of the stimulus emitted from the middle mark.

These include the blockbuster property market package in May, the most aggressive monetary policy easing measures since the pandemic in September and a 10 trillion yuan ($1.36 trillion) debt package for local governments in November.

“If China’s actual growth is below headline rates, it suggests there is a broader problem in China’s domestic demand that is contributing to global trade tensions,” Rhodium’s partner Local Wright told Reuters.

“Overcapacity will be a much less important issue if China’s economy is actually growing at a 5% rate.”

($1 = 7.3273)