China Hits 5% GDP Growth Target, but U.S. Tariff Threats Loom Over 2025

China’s economy achieved its official growth target of 5% in 2024, thanks to a late-year policy push and robust export activity. However, as President Donald Trump prepares to take office next week, his proposed tariffs on Chinese goods threaten to undermine the world’s second-largest economy in 2025.

Q4 Growth Outpaces Expectations
China’s GDP grew 5.4% year-on-year in the fourth quarter, its fastest pace in six quarters, driven by advanced shipments ahead of potential U.S. tariffs and targeted stimulus measures. Despite this strong finish, broader annual data painted a mixed picture:

- Consumption growth remained below pre-pandemic levels.
- Property investment experienced its sharpest contraction on record, plunging 10.6%, the worst since 1987.
- Nominal GDP, adjusted for deflation, grew just 4.2%, marking its slowest non-pandemic growth since the late 1970s.

“The recovery is tentatively sustained in a still fragile mode,” noted economists Wei Yao and Michelle Lam from Société Générale, urging policymakers to implement stronger fiscal stimulus in 2025.

Stimulus and Trade War Concerns
Beijing is expected to focus on fiscal policy this year, with plans to raise the budget deficit to 4% of GDP and triple special treasury bond sales. However, there is growing concern that improved economic data might reduce the urgency for more aggressive policies.

Morgan Stanley economists estimate that 60% of 2024’s growth rebound was due to policy measures, including incentives to boost manufacturing and consumption. However, they warn that this improvement may be short-lived, with trade tensions and a sluggish property market weighing on growth in 2025.

Trump Tariffs Could Hit Hard
Trump’s proposed tariffs—potentially as high as 60% on Chinese goods—are casting a shadow over China’s growth prospects. Exports accounted for about a quarter of China’s 2024 GDP growth, bolstered by frontloaded shipments ahead of Trump’s return to office.

“The biggest bright spot in the economy last year was exports,” said Jacqueline Rong, Chief China Economist at BNP Paribas. “That means the biggest problem this year will be U.S. tariffs.”

Additional tariff threats from the EU and other trade partners could further erode China’s export competitiveness.

Policy Priorities for 2025
To counter these challenges, Beijing is prioritizing domestic consumption. The government plans to expand programs encouraging consumers to upgrade appliances and equipment, backed by 600 billion yuan ($81.8 billion) in public funding. Other measures include:

- Increasing pensions and medical subsidies to encourage spending.
- Allowing local governments to use special bonds for purchasing unsold homes and repurposing unused land to stabilize the property market.

Despite these efforts, economists remain cautious. “Now is not the time for Beijing to rest on its laurels,” warned Lu Ting, Chief China Economist at Nomura, pointing to slow progress in key initiatives like reducing housing inventory.

Looking Ahead
China’s 2024 performance underscores its resilience amid global economic headwinds, but 2025 will likely present even greater challenges. As Trump’s tariffs loom and the domestic property market remains fragile, Beijing’s ability to balance stimulus and structural reforms will be key to sustaining growth.