China meets its growth target, but the bill follows

On paper, China is running exactly as planned, and you won't notice it in the renminbi's exchange rate. But behind the respectable 5% growth figure lies an economy that relies increasingly heavily on exports and less and less on domestic consumers.

Everyone has dreamed of getting their own grade after a primary school test. For the Communist Party of China, that dream has partially become a reality. According to official figures released yesterday, economic growth in 2025 will have reached exactly 5%. Coincidence or not: that was precisely the official target. On paper, that's an impressive achievement. The Chinese economy faced several setbacks last year, such as a trade war with the United States and households still reluctant to make major expenditures due to a weak labor and housing market.  

New export record
The export sector was the lifeblood of the Chinese economy last year. Despite US import tariffs, the trade surplus soared by about 20% to a record $1,2 trillion. While the country exported fewer goods and services to the United States, this was more than offset by strong growth in exports to Europe and, especially, to its Asian neighbors. Meanwhile, the rise in imports seen in recent years has almost completely stalled. The rising trade balance is therefore not only a sign that China is coping well with trade pressures, but also an indication that the domestic economy is struggling.

Vulnerable households, ageing society
Let's be honest: a student who gives themselves a 10 that they don't actually deserve will sooner or later pay the price. This, of course, also applies to China. According to think tank Capital Economics, official figures overestimate the actual growth rate by at least 1,5%. This gap is particularly visible in Chinese households. The years-long real estate crisis has eroded families' most important savings, while wage growth is lagging and job security is declining, especially among young people. Unemployment among young urban dwellers remains high, and temporary contracts are the rule rather than the exception. Moreover, China is facing an unfavorable demographic trend. The working population has been shrinking for several years, while the aging population continues rapidly.

Painful story behind a good growth figure
Behind a more than expected growth figure lies such a painful story. Economic growth is nothing more or less than the product of growing working population and increasing productivity. The prospect of a significant decline in the number of workers in the future makes it increasingly difficult for China to meet its own growth targets. For now, there's little evidence of this on the currency markets. Last year, the renminbi rose by almost 5% against the dollar. Initially, the Chinese central bank opted to allow the currency to appreciate slightly to defuse the trade dispute with Trump. Since then, the rise has been primarily due to the large trade surplus. Despite significant economic challenges, the renminbi is expected to remain at a good level in 2026.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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