China’s Economy Surges with Q4 GDP Growth of 5.4%

China closed 2024 with a GDP growth rate of 5.4% in Q4, exceeding economists’ expectations and hitting its annual target of 5%. Stimulus measures, including interest rate cuts and a ¥10 trillion fiscal package, helped stabilize the economy after earlier sluggishness. Retail sales and industrial production outperformed forecasts, signaling short-term recovery.

Economic growth, however, is revealing structural weaknesses. While exports provided a temporary boost, weak domestic consumption and a deepening demographic crisis weigh on long-term prospects. Retail sales grew by 3.7% in December, but the benefits of subsidies for trade-ins on appliances and cars have been limited. Similarly, urban unemployment rose to 5.1% in December, underscoring ongoing labor market challenges.

Demographics are an increasing concern. China’s population declined by 1.39 million in 2024, a continuation of its downward trend. Despite a slight rebound in birth rates, the death rate has risen, pointing to a persistent crisis that could dampen labor force growth and consumer spending.

From an economic perspective, China’s stimulus strategy embodies the multiplier effect—using fiscal and monetary policies to stimulate growth. However, the effectiveness of these measures depends on their ability to address market failures like the real estate slump and weak consumer confidence.

With U.S. tariffs under Trump’s administration on the horizon, analysts warn of potential pressure on trade-dependent growth. For students of economics, China’s case illustrates the challenges of balancing short-term growth with long-term sustainability amid shifting global and domestic dynamics.

THINK LIKE AN ECONOMIST!

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Q1. Define fiscal policy.

Q2. Explain one economic consequence of China’s demographic decline.

Q3. Analyse the impact of weak domestic demand on China’s GDP growth potential.

Q4. Discuss whether fiscal and monetary stimulus alone can sustain long-term economic growth in China.

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