General wisdom is that the best way to attain objectives is to set definite, actionable goals. But the New York Times #1 bestseller Atomic Habits by James Clear notes that goals must be achieved with sustainable systems. This is something that Chinese policy makers should keep in mind.
For several years, China’s economic plans have placed emphasis on growth targets. Last year was no different. Economic activity surprised to the upside with real gross domestic product (GDP) rising at an annual rate of 5.4% in the fourth quarter of 2024. This year-end dash helped the economy meet its official goal of “around 5%” expansion.
That said, the underlying picture is not as bright as the headline suggests. Consumption in China was propelled by the consumer goods trade-in program. Exporters also benefitted from front-loaded orders before Donald Trump’s inauguration and a likely increase in U.S. tariffs.
China is trying to treat a symptom without addressing the root cause.
The Chinese economy is far from being on strong footing, as troubles within its borders are deep-rooted. Consumer confidence indicators remain near their record lows. Spending growth is weak. Other markers such as tax revenue, online retail sales and construction activity continue to point toward soft momentum. The Li Keqiang Index – an unofficial proxy for China's economic growth, which comprises bank loans, electricity consumption and rail freight volumes – remains depressed.
Deflation is eroding corporate profits, diminishing employees’ incomes and exacerbating debt burdens. Several real estate developers have failed or struggled to finish projects. The youth jobless rate remains above the pre-pandemic level. China’s demographic problems are becoming more apparent, with an aging and shrinking working-age population.
Exporting their way out of prevailing troubles is no longer a viable option. Falling producer prices have made Chinese goods more competitive in foreign markets but raise the risk of making Beijing’s trade relations more fraught.
The Chinese economy is in need of structural reforms and an unprecedented demand-side stimulus. Policymakers have promised new measures, likely to be announced in the March National People’s Congress, but will find themselves constrained by elevated debt levels.
As the author of Atomic Habits argues: Goals are good for establishing a direction, but systems are best for making improvement. Committing to the process of addressing structural issues over near-term growth targets will help China achieve real progress.
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