A Reflection on China's Economy 2024: Growth, Transformation, and Transition

January 15, 2025

About the author

While partisan media paints a portrait of doom and gloom for China's economy, the reality is quite the opposite. Despite the downward adjustment in the real estate sector, China's economy continues to grow steadily. With the first three quarters of real GDP growth rate reaching 4.8% and economic activities accelerating in the last three months, China is en route to achieve the approximate 5% growth target for the year.¹ Further, the industrial landscape continues to evolve and transform. The production of the "new trio" - new energy vehicles, solar panels, and batteries - continues to expand. China contributes 67% of EV production, 80% of solar panel production, and over 70% of lithium battery production to the world market.² China's green transition is also gaining momentum. The nation is on track to install 1,200 GW of wind and solar capacity by the end of this year, six years ahead of its target. China accounts for two-thirds of global wind and solar projects currently under construction.³ In a nutshell, China's economy continues to grow while undergoing a grand transformation in both structure and driving force. Admittedly, as a middle-income country, China faces various challenges developing into a high-income country. The increasingly uncertain and complex geopolitical situation further compounds this challenge. Yet, China's long-established economic fundamentals remain solid - it has the most complete and dynamic industrial value chains, a sizeable pool of skilled labor and technical talents, and a vast amount of capital from both the public and private sectors. In addition, the Chinese government strategically steers the economy and adeptly crafts policies to support economic growth and structural transformation.

 

Growth and Structural Transformation amid Real Estate Sector Adjustment

China's post-pandemic recovery is complicated by the real estate sector adjustment, which started in 2020 with the "three red line" policy to deleverage real estate developers and tame housing speculation.⁴ This marked a monumental change in China's macroeconomy. The real estate sector has been a locomotive for investment growth, especially after the global financial crisis, but over-leverage and over-expansion in the property market are clearly inefficient and unsustainable. Therefore, even though real estate played a weighty role and contributed 25%-30% of China's GDP, policymakers have resolutely steered the economy away from property investment-driven growth.⁵ Bank credit has been diverted from the real estate sector into the industry sector; and real estate investment continued to contract, with a growth rate of -10.4% in the first eleven months of this year. The real estate sector's contribution to GDP has gone down from 25-30% of the total to close to 15-18%. As housing price declines gradually decelerated and rental yields progressively increased in October and November 2024,⁶ and with a slew of housing stabilization policies being rolled out, it is likely that the real estate sector will start to stabilize and normalize as early as the second half of 2025, mitigating its drag on the broader economy.

 

It is remarkable that a significant correction to the housing market has not produced a financial crisis or economic recession in China, unlike Japan in the 1990s, and US and Spain in the late 2000s. One of the reasons that China averted a crisis was that while the role of the real estate sector in driving growth was fading, new productive forces were being cultivated and fortified. The industrial sector has seen growth in bank lending and investment. In fact, fixed asset investment (FAI) in the industry sector has grown by 8.8% in the first 11 months of the year, and together with investment in infrastructure, these investments offset the contraction of real estate investment and yielded a positive growth of FAI of 3.3% in the first 11 months, or 7.4% if real estate sector is excluded. In particular, investment in the high-tech sector grew by 8.8%. Industrial value-added grew by 5.4% in the first 11 months, with new-energy vehicles, industrial robots, and integrated circuits outpacing other industrial production and growing at an annual rate of 51.1%, 29.3%, and 8.7%, respectively.⁷ China overtook Japan to become the largest automobile exporter last year, and this year, China is on track to export over 5 million cars. China's production capacity of EVs has exceeded 10 million for the first time this year. China is leading in 5 out of 13 critical technologies, catching up in 7 and lagging only in 1, according to a recent Bloomberg research report with an intriguing title "US Efforts to Contain Xi's Push for Tech Supremacy Are Faltering."⁸ It is quite extraordinary that a developing country has achieved such technological leap-frogging. China's advancement in its technological and industrial capacities not only means that value-added in the industry sector is mounting, but that the adoption and application of emerging technologies help boost productivity growth in the traditional sectors.

 

Aside from enhancing technological and industrial capacities, China is also accelerating the green transition. The broadly defined green economy, including green energies, tech, and products, now accounts for over 40% of the Chinese economy. Green transition is not only a strategic goal and driving force for China's long-term sustainable development but also a growth engine in the short run. China has invested forcefully in renewable energy installations, power grid upgrades, industrial decarbonization, hydropower projects, the Three-North Shelterbelt Forest Program, and the list goes on. Green transition in China does not proceed at the expense of the economy but provides an important growth impetus. 

 

With steady growth and structural transformation at home, China also productively engages with the rest of the world. In addition to the unilateral actions of granting 240-hour transit visa-free treatments to nationals of 54 countries,⁹ exempting tariffs for 33 least developed countries,¹⁰ and reducing foreign direct investment (FDI) restrictions, China also works closely with partner countries to strengthen multilateral ties and cooperation. The Belt and Road Initiative (BRI), after the first ten years of laying down essential infrastructure, now focuses on "small but beautiful" and "small yet smart" projects, which invest in green energies and improving technological/industrial capacities in host countries. Such a pivot addresses the evolving needs of the developing South but also leverages the limited debt-carrying capacity of the Global South to maximize economic gains. Further, from the Shanghai Cooperation Organization (SCO) and Forum on China-Africa Cooperation (FOCAC) to the BRICS+, China has been actively involved in forging economic cooperation in the Global South, in particular, in the areas of trade, investment, and establishing an alternative financial architecture. China also takes on an active role in G20 and APEC to enhance the voice of the Global South and push initiatives to fight against hunger and poverty, enhance trade and investment connectivity, and promote sustainable and inclusive development.

 

Understanding Demand-Side Challenges

Accomplishments notwithstanding, China's economy is facing a number of challenges. First, consumption demand shows some signs of weakness. The latest data shows that retail sales of consumer goods grew at 3% in November, weaker than the 4.8% growth recorded in October and below the market expectation of 5%. The lackluster growth in consumption demand has fueled an outcry over China's overcapacity issue. However, a number of caveats are worth noting when it comes to the consumption story. First, one-month data may not be indicative of the trend, given the high base effect. As this year's mega shopping festival, Singles' Day, started on October 14th, consumers might have frontloaded purchases, boosting October's retail sales while softening November numbers. Smoothing out the two months of retail sales, the year-on-year average growth rate would have been 3.9%, higher than the 3.3% growth rate from January through September. Second, unlike what some commentators have argued, weak consumer demand in China is not due mainly to the lack of household income growth. In fact, household disposable income growth was on par with, if not exceeding, the GDP growth rate. For example, disposable household income grew at 6.3% last year, compared to 5.2% of the real GDP growth rate. Household disposable income (in-kind transfer included) to GDP ratio in China was slightly over 60%, while lower than that in the US, it is aligned with the European and Japanese levels, and higher than South Korea. Yet China's household saving rate (the proportion of household savings to disposable income), which stood at around 35%, was much higher than the US, EU, Japan, and others. The pandemic has further motivated precautionary savings, evidenced by the swelling increase of 8.7 trillion USD worth of household deposits (using an exchange rate of 1 USD = 7.3 RMB) from January 2020 to November 2024. The negative wealth effect from the property and stock market underperformance added to the propensity to save rather than spend. However, the relatively weak confidence of consumers, while eminent at the present, should not be seen as a reversal of the past 20 years of the fast growth of consumption, averaged at an annual growth rate of 9.3%, triple the world's average growth rate of consumption at 3%.

 

Colloquially, the over expansion narrative propagated by the Western media and think tanks reflects over-anxiety of China's competitiveness and serves the purpose of delegitimizing China's innovation-driven growth. As evidence shows, China's manufacturing sales from exports accounted for 21.3% of the total manufacturing sales in the first ten months of 2024, while the United States' comparable share was indeed higher, at 23.5% for the first nine months of 2024.¹¹ Seen from this light, the US economy is more export-dependent than China's. Further, China's swift and massive production of green tech and green products has made the global green transition much more affordable. For example, China's production of solar panels has led to an over 80% price reduction in the past two decades; and China's EVs provide a much more cost-competitive alternative to internal combustion engines. Barring from the Western protectionist policies, China could help significantly elevate the global green capacity to combat climate change.

 

Economic Statecraft in Face of Internal and External Challenges

Final demand contributed 82.5% of GDP growth in 2023, but only 49.9% for the first three quarters of this year. The rapid expansion of China's production capacity and the relatively slower catch-up of consumer demand, coupled with Trump's re-election and potential trade war, have prompted policymakers to take more forceful actions to bolster domestic demand. Since the end of September, monetary policy has been eased through reserve requirement ratio (RRR) cuts, interest rate cuts, and the establishment of special facilities to support the stock market, real estate developer financing, and social housing purchases. Fiscal support, with a focus on local government debt swap, aims to ameliorate local government debt burden and expand fiscal spending at the local government level. The direct consumption stimulus program, namely, the household appliances and automobiles trade-in program, was also launched in the second half of the year and had notable effects in stimulating home appliances, furniture, and automobile sales. Relaxation of housing purchase restrictions in first-tier cities has galvanized home purchases in the secondary market and helped narrow housing price decline, as previously discussed. In addition, policies supporting childbirth and childbearing, employment stabilization, and income supplements for low-income households have been rolled out. Finally, the recent Politburo meeting and the Central Economic Work Conference (CEWC) further cemented the "unconventional" counter-cyclical fiscal and monetary measures to stabilize the economy. It is likely that fiscal policy will be more proactive in the coming year, with an increase in the deficit-to-GDP ratio and issuance of central government special-purpose bonds to further boost domestic demand.

 

With the re-election of Donald Trump as the 47th President of the United States, 2025 will bring more uncertain and volatile external environment. Trump's campaign trail pledge proclaims a 60% tariff on all China's exports into the US, along with a cross-the-board 20% tariff on non-Chinese imports. Most recently, Trump threatened to impose a 25% import tariff on goods from Canada and Mexico, and an additional 10% tariff on those from China, for the alleged "lack" of actions to curb illegal immigration and the drug crisis in the US. He further warned against BRICS countries and pledged a 100% tariff to penalize their de-dollarization efforts. In addition, Trump has appointed a crew of China hawks in key economic and diplomatic positions. The Trump administration is poised to go tough on China, especially through tariffs and tech containment measures. Ironically, Trump extended an invitation to President Xi Jinping to attend his inauguration ceremony. In a recent interview, Trump called Xi "an amazing guy" and claimed that "China and the United States can together solve all of the problems of the world."¹² It is amply clear that Trump continues to play his old trick - applying maximum pressure yet making some concessions to strike the most favorable transactional deals.

 

In face of the uncertainty, the Chinese leadership has adopted a sensible two-prolonged approach. Externally, President Xi Jinping unequivocally communicated with the US regarding China's four red lines, including Taiwan, democracy and human rights, China's path and system, and China's development rights.¹³ Chinese Foreign Minister Wang Yi also reiterated that Beijing "firmly opposes the illegal and unreasonable suppression of China by the US and, in particular, must respond firmly and forcefully to the United States' brutal interference in China's internal affairs, such as Taiwan."¹⁴ In addition, the recently intensified bans on exports of germanium, gallium, and other dual-use critical minerals to the US confirmed China's position - China does not play offensive, but China is determined to defend itself against unfair treatment. That said, China will need to strike a fine balance between retaliation and disengagement. Some retaliations in the form of tariffs and export bans may be necessary measures to deter further aggression from the US; however, retaliations also incur costs on China. It is in China's interest to continue to engage the US in global trade, investment, diplomacy, climate, and other global affairs. Besides the US, China actively engages with the rest of the world, especially the Global South. China continues to invest in infrastructure connectivity, green energies, and "small yet smart," "small but beautiful" projects through the BRI. The inauguration of the Chancay port in Peru during this year's APEC summit epitomized the win-win economic cooperation between China and a Global South country. As discussed earlier, China has adopted unilateral and multilateral, high-level opening measures to further integrate into the global economy. China's strategic engagement with the rest of the world helps shield it from protectionist policies from the US and its Western allies. China exported more to the BRI countries than to the US, EU, and Japan combined in 2023.¹⁵ China has signed free trade agreements with 28 countries and territories that take up close to 40 percent of its exports. Trump's "America First" policy would amount to an "America Isolationism" policy, which would only undermine the United States' own economic, technological, and geopolitical prospects.

 

Internally, China spares no effort to fortify its economy. As discussed earlier, a policy pivot started in late September to support 2024's growth. Further, the CEWC mapped out policy priorities for the coming year. Boosting domestic demand is set as the top policy priority and "more proactive fiscal policy and moderately loose monetary policy" will be deployed to stabilize economic growth, job creation, and general price levels. China reckons that the best defense is to solidify its economic stability and growth and to develop its economy into a more productive, more sustainable, and more resilient one.

 

As I argue elsewhere, China plays a long game.¹⁶ The next four years may present heightened external challenges if Trump does turbocharge the tariff war, along with other tech containment measures. Yet these policies come at the expense of the United States' own economy. The Peterson Institute for International Economics (PIIE) has estimated that Trump's tariff hike could cost an average American household an extra 2,600 USD a year. This, coupled with mass deportation and tax cuts, would significantly elevate inflation and dampen GDP growth. Some commentators argue that Trump's first tariff war did not raise inflation noticeably, but times are different and complacency is unfounded. The inflation rate was 1.9% back in 2019 and came down from a peak of 9.1% in June 2021 to settle at 2.7% as of November 2024, still much higher than the Fed's target. Even using the Fed's own framework (which is fraught with flaws), inflation expectations are much less well anchored now than four years ago. More importantly, the supply-push inflation the US has just experienced indicates that monopolistic and oligopolistic firms could take advantage of cost shocks to propagate price hikes and produce lasting sellers' inflation. Even Trump himself conceded that he couldn't guarantee that tariffs were not paid for by consumers. Knowing that inflation and pocketbook economics have just cost Democrats a presidential election, it is unlikely that Trump and the Republicans can afford to ignore the economic costs of a tariff war. On the other hand, China is much more prepared to deal with Trump this time around. While some of the past practices to lessen the negative impacts of tariffs, such as a 10% depreciation of the Chinese currency, may not be as viable and desirable this time, China has effectively reduced its direct exposure to the US economy. Exports to the US have declined from 18% of China's total exports during the first Trump presidency to now around 13%, and China has made strides to produce its own semiconductor chips. In all, the US is now more susceptible to the damage from self-inflicted tariff war, while China is less vulnerable to a protectionist US.

 

China is on track to achieve the targeted economic growth despite various headwinds in 2024. 2025 will bring more uncertainties and complexities, but with the collective resolve and determination of the Chinese people, and with sound fundamentals and sensible economic policies, China could turn challenges into opportunities, and continue to restructure, rebalance, reflate, and reinvigorate its economy.

 

 

1. "China's GDP Expands 4.8 Percent in First Three Quarters," Xinhua, October 18, 2024, https://english.news.cn/20241018/f00a5d67c2a74e4ca2ceecabdab61ee0/c.html.

2. "The EU and US Challenge China's Overcapacity in Electric Vehicles and Solar," Manufacturing Today, October 7, 2024, https://manufacturing-today.com/news/the-eu-and-us-challenge-chinas-overcapacity-in-electric-vehicles-and-solar/.

3. Amy Hawkins, "China Building Two-Thirds of World's Wind and Solar Projects," The Guardian, July 11, 2024, https://www.theguardian.com/world/article/2024/jul/11/china-building-twice-as-much-wind-and-solar-power-as-rest-of-world-report.

4. "What China's Three Red Lines Mean for Property Firms," Bloomberg, October 9, 2020, https://www.bloomberg.com/news/articles/2020-10-08/what-china-s-three-red-lines-mean-for-property-firms-quicktake.

5.Kenneth Rogoff, "Diminishing Returns on Real Estate Threaten Chinese Economic Growth," East Asia Forum, December 7, 2024, https://eastasiaforum.org/2023/12/07/diminishing-returns-on-real-estate-threaten-chinese-economic-growth/.

6. "Sales Prices of Commercial Residential Buildings in 70 Medium and Large-sized Cities in November 2024," National Bureau of Statistics of China, December 16, 2024, https://www.stats.gov.cn/english/PressRelease/202412/t20241219_1957788.html.

7. "National Economy Witnessed Steady Recovery in November," National Bureau of Statistics of China, December 16, 2024, https://www.stats.gov.cn/english/PressRelease/202412/t20241216_1957768.html.

8. "US Efforts to Contain Xi's Push for Tech Supremacy Are Faltering," Bloomberg, October 30, 2024, https://www.bloomberg.com/graphics/2024-us-china-containment/.

9. "China Extends Visa-Free Transit Stays to 240 Hours, Adds More Entry Points," Xinhua, December 17, 2024, https://english.news.cn/20241217/2de2a5134ad54f6b9824d65edb0d37c0/c.html.

10. "Zero-Tariff Treatment for LDCs Mirrors China's Commitment to High-Level Opening Up," People's Daily, December 6, 2024, http://en.people.cn/n3/2024/1206/c90000-20250955.html.

11. Simon J. Evenett, "Red Alert: Is China's Recent Export Growth So Exceptional that Foreign Officials & Corporate Executives Should Be Losing Sleep?," Global Trade Alert, December 9, 2024, https://www.globaltradealert.org/reports/172.

12. Joe Cash, Liz Lee, and Ethan Wang, "China, Trump Talk Up Prospects for US-China Collaboration," Reuters, December 17, 2024, https://www.reuters.com/world/china-trump-talk-up-prospects-us-china-collaboration-2024-12-17/.

13. "Xi Says US Must Not Cross Four Red Lines," Xinhua, November 17, 2024, https://english.news.cn/20241117/a147be58d8264d95bee354335ff35154/c.html.

14. Cash, Lee, and Wang, "US-China Collaboration."

15. James Kynge and Keith Fray, "China's Plan to Reshape World Trade on Its Own Terms," Financial Times, February 26, 2024, https://www.ft.com/content/c51622e1-35c6-4ff8-9559-2350bfd2a5c1.

16. Yan Liang, "Is China Ready for the Trump Trade War 2.0?," The Diplomat, November 20, 2024, https://thediplomat.com/2024/11/is-china-ready-for-the-trump-trade-war-2-0/.

 

 

This article is from the November issue of TI Observer (TIO), which re-examines some of the key developments in 2024, analyzing the characteristics of this transitional period, sharing insights on its trajectory and direction, and exploring the opportunities and challenges ahead. If you are interested in knowing more about the December issue, please click here:

http://en.taiheinstitute.org/UpLoadFile/files/2024/12/31/14452169dd313728-8.pdf

 

——————————————

ON TIMES WE FOCUS.

Should you have any questions, please contact us at public@taiheglobal.org