China’s Q4 Growth Outpaces 5% Growth Target; Hang Seng and AUD/USD Respond

China’s Economy Rebounds in Q4 2024

On Friday, January 17, China’s economy was under the spotlight. Economic indicators suggested China’s economy turned a corner in Q4 2024, potentially reflecting the effectiveness of Beijing’s stimulus measures.

The economy expanded by 5.4% year-on-year in Q4 2024, up from 4.6% in Q3 2024. Significantly, the Q4 figures outperformed the government’s 5% growth forecasts, aligning with assurances it would achieve its 2024 targets.

The recovery comes amid heightened global uncertainty, including Trump’s inauguration on January 20 and the threat of US tariffs. Trump’s threat of tariffs has put greater emphasis on consumption and domestic demand as a key growth driver.

While growth accelerated in the fourth quarter, other economic indicators sent mixed signals heading into 2025. These included:

• Retail sales increased by 3.7% year-on-year in December, up from 3.0% in November. Despite the rise, retail sales remain below historical levels, underscoring weak domestic consumption. In October 2024, retail sales increased by 4.8% year-on-year.
• Industrial production rose by 6.2% year-on-year, following an increase of 5.4% in November.
• However, the unemployment rate unexpectedly rose from 5.0% in November to 5.1% in December.
• Fixed asset investment softened slightly, falling from 3.3% year-on-year in November to 3.2% in December.

The December numbers highlighted the need for effective stimulus measures targeting demand and consumption. Weaker labor market conditions may further impact consumer sentiment, potentially impacting consumption.

The People’s Bank of China (PBoC) Governor Pan Gongsheng recently emphasized the importance of consumption, saying,

“The priority of macroeconomic policy should shift from promoting more investment in the past, to promoting both consumption and investment, with more importance attached to consumption.”

Expert Perspectives on China’s Economic Strategy

Experts are debating whether China’s stimulus measures can effectively transition the economy from its reliance on exports to a consumption-driven model. Alicia Garcia Herrero, Asia Economist at Natixis, commented,

“Xi Jinping’s ideological opposition to European-style “welfarism” is among the reasons that China is locked into its state-subsidised, export-led industrial model. It’s not so easy to boost domestic demand. They would need to radically change their economic model.”

A shift to a consumption-driven economy could reduce China’s exposure to global shocks and demand trends.

Market Reaction to China’s Economic Data

The Hang Seng Index reacted to China’s economic data, rising from 19,472 to a high of 19,582.

On Friday, January 17, the Hang Seng Index was up 0.17% to 19,557. Concerns about the effects of US tariffs on China’s economy capped the early gains.

In the forex markets, the Aussie dollar, considered a proxy for the Chinese economy, also advanced. The AUD/USD climbed from $0.62102 to a high of $0.62175.

The AUD/USD was up 0.09% to $0.62172 in the morning session.

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