China says the economy grew 5% last year, driven by exports

The economic scars of China’s property crash are evident in the country’s many street markets for building materials. Owners of once-bustling shops selling everything from lighting fixtures and doors to toilet bowls are hurting customers.

At the same time, China’s exports have risen sharply. Companies send cars, smartphones and many other products to foreign markets that they can no longer sell at home. Private sector companies are investing heavily in new factories and equipment to expand production for export.

On Friday, the National Bureau of Statistics said China’s economy grew 5 percent last year, as rising exports and strong investment in factories and industrial equipment mostly offset a prolonged downturn in construction.

The government had set a target of “around 5 percent” almost a year ago. The 2024 figure was only slightly slower than China’s 5.2 percent growth rate in 2023, as the country rebounded from nearly three years of municipal lockdowns, mass quarantines and other strict pandemic measures.

The economy grew more strongly from October to December than in any other quarter of the year. Buoyed by strong auto sales, the Chinese economy grew late last year at a pace that, if extended for a full year, would represent a growth rate of 6.6 percent.

While the official figures often draw skepticism, government economists insist the economy has regained its footing. “China’s economy is really recovering amid ups and downs,” said Yang Ping, director of economic research at the National Development and Reform Commission, China’s main economic planning agency.

The real engine of the economy now lies in an ever-growing trade surplus, which reached nearly $1 trillion last year. In December, the $104.8 billion surplus was the largest any country had reported in a single month. Investments in new factories and production equipment rose 9.2 percent last year as companies increased capacity for export.

China exported enough electric and plug-in hybrid cars last year to form a line across Asia and Europe from Beijing to Rome, Lyu Daliang, director of statistics and analysis at China’s General Administration of Customs, said during a news briefing on Monday. He did not mention that automakers also exported more than twice as many gasoline-powered cars as demand in China has halved since 2017, when consumers switched to electric models.

Exports are strong, partly because China’s large population can no longer afford to buy many of the goods that the country’s factories discard. Dozens of real estate developers have failed, evaporating jobs and wealth. The surviving developers are struggling to complete projects and are not taking on as many new housing developments.

The middle class has lost much of its savings with a plunge in the value of homes, by far the biggest asset for most households. The result has been weak consumption, which is only now beginning to bottom out.

The companies’ profits have been eroded over the past three years. Prices have fallen across the Chinese economy, falling 0.7 percent last year. Chronic price declines, a phenomenon called deflation, are making it very difficult for China’s heavily indebted local governments, businesses and households to service debt.

In recent months, the Chinese government has pursued several strategies to stabilize the economy. Government workers have received pay rises. Local governments have been allowed to issue more bonds to offset their recent drop in revenue from the sale to developers of long-term leases on state land.

The national government has encouraged the construction of roads and other infrastructure projects to try to counter the loss of construction jobs by property developers. But Beijing has had trouble finding local governments with enough money to finance these tasks.

In order to restart consumer spending, the Ministry of Commerce has followed an extensive so-called cash for clunkers program. Together, the national and local authorities offer subsidies to households trading in old gas-guzzling cars for electric cars and old household appliances for new, more energy-efficient models.

The program got off to a slow start last spring. The initial subsidies were as little as one-tenth of the purchase price of the replacement car or appliance. But sales strengthened significantly through the autumn, after the government doubled the economic incentives in August.

China’s car sales set a world record in November, then broke the record in December when 3.1 million passenger cars were sold. Battery-electric and plug-in hybrid gasoline-electric cars made up half of the market.

But some of the national and provincial subsidies for car purchases expired at the end of December, giving households a strong incentive to make purchases before then. The automaker’s executives worry that many of the December sales were pulled forward from the early months of this year, which may be much weaker.

Some academic economists question whether the Cash for Clunkers program is causing households to redirect spending toward new cars and appliances and away from meals and other spending. If consumers change how they spend money without increasing overall consumption, the effects on the economy will be modest.

Government economists insist the program increases overall spending. Last week they added microwave ovens, dishwashers, water purifiers and rice cookers to the list of eligible appliances.

“With these new policies, we can stimulate people’s consumer demand — it’s not just a diversion,” Yang said at a news briefing on Wednesday.

Despite the robust car sales, total retail sales increased by only 3.5 percent last year. Manufacturing output rose 6.1 percent, with extra output mostly exported.

The government has pressured universities, banks and other institutions in mainland China and Hong Kong to make sure their economists do not question the accuracy of government statistics. Economists who have done so have had their social media accounts blocked and have sometimes lost their jobs and been barred from working in the financial sector.

Nevertheless, questions remain about the true health of the economy. Gao Shanwen, chief economist at SDIC Securities, a Chinese brokerage, became the latest to cast doubt on the economy’s actual growth rate during a panel in Washington last month.

“My own speculation is that in the last two to three years, the real number may average about 2 percent,” he said, adding that in the coming years, “we know, and I think that official figures will always be around 5 percent.”

Mr. Gao has disappeared from the public eye since then. SDIC Securities did not respond to questions about Mr. Gao’s remarks, and Mr. Gao could not be reached for comment. Mr. Gao’s license as an investment adviser in Hong Kong, which had been active since 2012, lapsed at the end of December.

Hou Weitang is on the front lines of the economic downturn. Mr. Hou is a wholesaler at a building materials market in Jinan, east China’s Shandong province. He has worked in the market for 20 years. It was almost deserted on a recent weekend.

Mr. Hou said business just got worse. Like many entrepreneurs, he now focuses on cutting costs rather than spending or investing.

“We have to reduce expenses, reduce material prices, engage in price wars and try to sell more,” said Mr. Hoo. “All my costs are being cut – only in this way can we keep the doors open steadily; otherwise we will not be able to cover expenses.”

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