Opinion How to read China’s better-than-expected growth figures

“According to preliminary estimates, the gross domestic product (GDP) in the first quarter reached 31,875.8 billion yuan, up by 5.4 per cent year on year at constant prices, or up by 1.2 per cent over that in the fourth quarter of 2024,” said the NBS press release. “By industry, the value added of the primary industry was 1,171.3 billion yuan, up by 3.5 per cent year on year; that of the secondary industry was 11,190.3 billion yuan, up by 5.9 per cent; and that of the tertiary industry was 19,514.2 billion yuan, up by 5.3 per cent,” the press release stated.

Context of changing numbers

China’s better-than-expected growth comes at a crucial time. The chart alongside shows that China’s GDP was about a tenth of the US GDP until around the turn of the century. But in the following years, especially since 2003, the Chinese economy grew fast and rapidly closed the gap with the US economy, the biggest economy through this period.

Chart.

However, after 2021, when its economy was around 75% the size of the US economy, China started to lose ground relative to the US. Between 2021 and 2024, while the US economy grew from an annual nominal GDP of $23.6 trillion to $29.1 trillion, Chinese annual GDP could only rise from $17.8 trillion to just $18.2 trillion. Put simply, over the past four years, the US has extended its lead over China, its closest rival.

This has happened at a time when, led by the US, the rest of the world has tried to adopt a China + 1 strategy, which essentially refers to reducing the dependence on China. This has also been a time when the US has tried to contain China’s rise through direct legislation such as the CHIPS (Creating Helpful Incentives to Produce Semiconductors) Act.

Beyond such geo-political measures, China has also suffered from internal problems such as a slowdown in the real estate market — a development that threatened to stall the Chinese economy.

The collapse of Evergrande Group, which was once China’s largest property developer, between 2021 and 2024 is a case in point. Evergrande reportedly had unpaid debts over $300 billion.

Reason for upside in growth

Owing to the domestic slowdown and in anticipation of the growing attacks on the trade front from the US, policymakers in China have been providing both fiscal and monetary stimuli.

On the monetary side, since September 2024, the People’s Bank of China (the central bank, like the RBI in India) has slashed interest rates to incentivise economic activity. In particular, it has asked commercial banks to cut interest rates on real estate mortgages to reignite interest in the property market.

The PBOC also cut the reserve requirements with the banks — a move that allowed banks to have more money for lending purposes. The PBOC even provided loans for those involved in the stock markets to stabilise the markets and smooth out fluctuations.

The moves on monetary policy were complemented by relief on the fiscal front. In November 2024, the government announced a fiscal stimulus package worth $1.4 trillion (that is roughly 40% of India’s annual GDP). Essentially, this package allowed local governments, which had lost a lot of money as the estate market collapsed, to issue new bonds and tide over the crisis that wrecked local government finances.

Outlook

China has said the GDP growth numbers show that the national economy was “off to a good start” and “the high-quality development was advancing with new and positive momentum”.

However, these data do not show the adverse impacts of Trump’s trade tariffs. Indeed, it can be argued that China’s GDP growth benefited from consumers trying to hoard goods before the impact of tariffs made everything costlier.

The Chinese economy is likely to face greater constraints as a full-blown trade war with the US takes effect. In order to make up for the fall in demand for its goods — thanks to prohibitive levels of tariffs — its policymakers will have to boost domestic demand as well as find ways to sell its goods in the rest of the world. In this context, closer trade ties with Europe will be critical, not to mention finding ways to arrive at a deal with the US.