By Reshma Kapadia

News that China's GDP rose 5% in 2024, hitting the government's target thanks to exports and investment, hasn't revived confidence about the outlook. Increased tariffs could endanger one of the struggling economy's few bright spots. Chinese stocks got a lift from the data, which Beijing released overnight. The iShares MSCI China exchange-traded fund rose 2% early Friday to $46.31. But many economists were skeptical about the data, as well as whether small glimmers of improvement on the ground would last.

Economists don't put much stock in official Chinese data due to a lack of transparency. By her calculations, TS Lombard economist Freya Beamish put 2024 gross domestic product growth at 4.6%, rather than 5%, with exports contributing to 40% of the increase in the second half of the year.

While exports have been a bright spot amid China's economic malaise, that is adding to unease about the outlook. Increased tariffs from the U.S. could potentially jeopardize one of the strongest legs of China's economic growth.

In a note to clients, Barclays Hong Kong-based economists said the latest economic data "may overstate underlying momentum." While industrial production hit an eight-month high in December, up 6.2% from a year earlier, Barclays attributed the growth to exports being moved forward as companies prepped for potential U.S. tariff hikes. Beyond that, the economists noted a third straight double-digit decline in investment in the battered property sector.

In addition, they said, demand-oriented data didn't sync with the official GDP data For example, they noted that while the government numbers showed growth in investments in fixed assets surged by 3.7 percentage points to 2.4%, the highest level since March 2022, that was in contrast to private data on credit growth.

The fact that growth has been underwhelming even before tariffs hits increases the odds of "outsized" fiscal stimulus to allow the economy to hit the government's targets, TS Lombard Chief Economist Freya Beamish said. Stimulus already rolled out has sparked some glimmers of improvement, she said. Retail sales came in stronger than expected, helped by a trade-in program that boosted demand for appliances, and property sales improved for a second month, Beamish said.

But others are skeptical about the scope of stimulus. "China has no engines for faster growth in sight, leaving borrowing a bridge to nowhere and 2024 very possibly as good as it gets," said Derek Scissors, chief economist at the independent research firm China Beige Book and a senior fellow at the American Enterprise Institute. Continued declines in yields on Chinese 10-year government bonds, at 1.63% as markets closed in Beijing on Friday, down from 2.1% in September and almost 3.5% in October 2023, reflect that pessimism. It highlights a growing view that China could be in for the deflationary malaise that gripped Japan for nearly two decades.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

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January 17, 2025 12:38 ET (17:38 GMT)

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