1 Viral outbreaks in China could pile even more pressure on the economy
Starting in late 2024, China saw the outbreak of what appears to be one or several respiratory viruses.
In early January 2025, the CCP authorities claimed that the top five pathogens in circulation are (in order) the influenza virus (influenza A accounting for 99 percent of cases), human metapneumovirus (HMPV), mycoplasma pneumonia, COVID-19, and adenovirus. For HMPV, in particular, the positivity rate among individuals aged 14 and younger has fluctuated upward, according to the CCP authorities.
On Jan. 7, the World Health Organization said that it was in contact with Chinese officials and had not received any reports of “unusual outbreak patterns.”
On Jan. 12, the Chinese Center for Disease Control and Prevention said that multiple respiratory infectious diseases are currently alternating or overlapping in circulation. The Chinese CDC added that all cases involve known pathogens and no new infectious diseases have emerged.
Social accounts of the outbreak
From late 2024 to early 2025, videos and information circulating on Chinese social media, as well as reports from overseas Chinese-language media, showed pediatric hospitals in China overcrowded with children exhibiting symptoms such as coughing and fever. A video filmed by a woman at a hospital noted that many children were infected with several viruses rather than a single virus, leading to them developing severe pneumonia within three to four days. Sick children aside, Chinese netizens also reported clusters of infections within communities and hospital beds being fully occupied.
On social media and other channels, residents in multiple regions in China said they suffered from symptoms such as dizziness, fluctuating body temperatures, runny nose, coughing, sore throat, fatigue, and overall bodily discomfort. The regions include Tianjin, Guangdong, Jiangsu, Shandong, Liaoning, Hebei, and Anhui.
On Dec. 30, 2024, mainland media outlet Xiaoxiang Morning News published a report with the title, “Highly Contagious and Prone to Mutation! Wuhan CDC Issues Warning.” According to information circulating online, some schools in Wuhan had already suspended classes in December.
Around late December 2024, some mainland media outlets were reporting that China was seeing an outbreak of HMPV and that it was a virus with strong transmissibility in crowded environments. However, some patients in Beijing said that doctors were uncertain what virus was being circulated and there was no effective treatment for those who came down with it. Many Chinese citizens said that the symptoms of the virus in circulation were even more severe than those of COVID-19, with some describing it as being 10 times worse. Some people suspected that the virus behind the outbreak was not those that the CCP authorities claimed like influenza A, but could possibly be a new variant of COVID-19.
On Jan. 1, the phrase “influenza overwhelms tertiary hospitals” (流感擠爆三甲醫院) trended on Chinese social media. On Jan. 5, topics such as “the positive rate of influenza virus in the country is rising rapidly” (全國流感病毒陽性率快速上升) and “influenza overwhelms tertiary hospitals” were top social media trends. On Jan. 8, the phrase “rare infectious disease case confirmed in Jiangsu” (江蘇確診一例罕見傳染病) made the trending list.
On Jan. 11, Dajiyuan (Chinese edition of The Epoch Times) reported a Chinese doctor involved in epidemic monitoring and control as saying that the official data was unreliable. The doctor said, “I have encountered no fewer than 100 cases of H5N1. H5N1 has already spread widely [in China] and is basically out of control. It will soon be officially announced. Large-scale quarantine zones are already under construction along highways.”
Meanwhile, some videos on Chinese social media showed packed crematoriums in various parts of China. A video published on Dec. 30, 2024 showed a queue for cremations stretching out of sight at a funeral home in Hangzhou City, Zhejiang Province.
Our take
1. The information circulating on Chinese social media and overseas Chinese-language media about the nature of the virus outbreak in mainland China and the severity of the symptoms are unsupported and we were unable to independently corroborate the information. But if the various pieces of information are accurate, they paint the picture of an epidemic involving multiple viruses spreading rapidly in communities across China, with a significant mortality rate in at least some places.
When juxtaposed with unofficial information, the official response to the outbreak in China suggests that the CCP authorities are downplaying the situation and avoiding any association with COVID-19. Cover-ups and downplaying of problems are standard reactions for the CCP when faced with a crisis, and the situation on the ground is likely worse than what is officially revealed in most cases. Beijing could also be looking to understate the situation with the current outbreak so that it would not have to resort to mass lockdowns and other “zero-COVID” measures that would exacerbate investor pessimism about the Chinese economy and worsen economic problems.
We wrote in our 2025 China Outlook, “The COVID-19 pandemic and other pandemics could circulate in mainland China. However, the CCP authorities could attempt to downplay the situation or feign ignorance of the matter.”
2. It is unclear if the CCP authorities are indeed constructing large-scale quarantine zones along highways to deal with the outbreak as reported in overseas Chinese media. However, it is possible that the authorities could repurpose public facilities for “normal and emergency uses” (平急兩用) that have been constructed since 2023 as quarantine camps if the outbreak becomes an epidemic.
3. Businesses, investors, and governments should closely track the development of the viral outbreak in China. Should the situation worsen, global supply chains would be affected and the Chinese economy is likely to underperform even more than expected.
2 Official 2024 trade and financial data signals tough time ahead for PRC
China’s 2024 trade data
The PRC General Administration of Customs released China’s trade data (in U.S. dollars) for December 2024 and the full year.
December 2024
- Total trade increased by 6.5 percent year-on-year to $566.42 billion (no difference in the growth rate when compared with official PRC data from 2023).
- Exports increased by 10.7 percent year-on-year to $335.63 billion (the growth rate was 10.5 percent when compared with official PRC data from 2023).
- Imports increased by 1 percent year-on-year to $230.79 billion (the growth rate was 1.1 percent when compared with official PRC data from 2023).
- The trade surplus was $104.84 billion (the growth rate was 39.2 percent when compared with official PRC data from 2023).
January-December 2024
- Total trade increased by 3.8 percent year-on-year to $6.16 trillion (no difference in the growth rate when compared with official PRC data from 2023).
- Exports increased by 5.9 percent year-on-year to $3.58 trillion (the growth rate was 5.8 percent when compared with official PRC data from 2023).
- Imports increased by 1.1 percent year-on-year to $2.59 trillion (no difference in the growth rate when compared with official PRC data from 2023).
- The trade surplus was $992.16 billion (the growth rate was 20.5 percent when compared to the official PRC data from 2023).
China’s exports to major trading partners
- European Union: Up 8.8 percent in December 2024 and up 3 percent in January-December 2024.
- United States: Up 15.6 percent in December 2024 and up 4.9 percent in January-December 2024.
- ASEAN: Up 18.9 percent in December 2024 and up 12 percent in January-December 2024.
- Russia: Up 5.5 percent in December 2024 and up 4.1 percent in January-December 2024.
- Latin America: Up 16.9 percent in December 2024 and up 13 percent in January-December 2024.
China’s 2024 financial data
The People’s Bank of China released credit and social financing data for December 2024 and the full year.
Money supply
- Broad money supply (M2) in December 2024 increased by 7.3 percent year-on-year to 313.53 trillion yuan. This marked the 13th consecutive month of single-digit M2 growth since December 2023.
- Narrow money supply (M1) in December 2024 decreased by 1.4 percent year-on-year to 67.1 trillion yuan. This marked the ninth consecutive month of decline, with the rate of decline continuing to widen.
RMB loans
- New renminbi loans increased by 18.09 trillion yuan in 2024, compared with 22.75 trillion yuan in 2023.
- Household loans increased by 2.72 trillion yuan in 2024, compared with 4.33 trillion yuan in 2023.
- Short-term loans increased by 473.2 billion yuan in 2024, compared with 1.78 trillion yuan in 2023.
- Medium- and long-term loans increased by 2.25 trillion yuan in 2024, compared with 2.55 trillion yuan in 2023.
- Corporate and institutional loans increased by 14.33 trillion yuan in 2024, compared with 15.68 trillion yuan in 2023.
- Short-term loans increased by 2.61 trillion yuan in 2024, compared with 3.92 trillion yuan in 2023.
- Medium- and long-term loans increased by 10.08 trillion yuan in 2024, compared with 13.57 trillion yuan in 2023.
- Household loans increased by 2.72 trillion yuan in 2024, compared with 4.33 trillion yuan in 2023.
RMB deposits
- RMB deposits increased by 17.99 trillion yuan in 2024, compared with 25.74 trillion yuan in 2023.
- Household deposits increased by 14.26 trillion yuan in 2024, compared with 16.67 trillion yuan in 2023.
- Deposits of non-financial enterprises decreased by 294.3 billion yuan in 2024, compared with an increase of 1.64 trillion yuan in 2023.
Social financing
- Social financing increased by 32.26 trillion yuan in 2024, compared with 35.59 trillion yuan in 2023.
- Net government bond financing increased by 11.3 trillion yuan, or 35 percent of total social financing for the year.
Our take
1. The PRC’s latest trade data contains some bright spots for the regime. Exports grew by double-digits in December 2024, beating expectations by several points (7.3 percent per a Reuters poll). Meanwhile, imports turned positive after two consecutive months of negative growth and China’s trade surplus reached an annual record of nearly $1 trillion for the year.
However, a closer look at the data reveals it to be less optimistic:
i) The spike in exports in December appears to be partly driven by U.S. companies stockpiling goods ahead of potential tariff hikes under the Trump administration. This suggests that the demand for Chinese exports could decline in the coming months and that the current glowing figure is unsustainable.
ii) The bulk of China’s exports in 2024 was concentrated in the EU (14.4 percent), the U.S. (14.7 percent), and ASEAN (16.4 percent). However, over 60 percent of China’s total trade surplus comes from the EU (24.9 percent) and the U.S. (36.4 percent). This indicates that the profitability of Chinese exports remains highly dependent on Western markets, and is vulnerable to escalations in the Sino-U.S. trade war and growing EU protectionism.
Disruptions to China’s exports would further exacerbate excessive competition (“involution”) between Chinese companies, which are already struggling with severe overcapacity.
iii) While China’s trade surplus in 2024 neared $1 trillion, its foreign exchange reserves were $35.6 billion lower at the end of the year as compared to 2023. This suggests that exporting companies kept most of their foreign exchange overseas, while the trade surplus was offset by a deficit in services, capital outflows, and China’s overseas investment (including the Belt and Road Initiative and other projects).
iv) China’s trade with Russia appears to have reached a saturation point, with exports for the full year growing just 4.1 percent and imports increasing by 0.1 percent. This is a stark contrast to 2023 when China’s exports and imports to Russia grew by 45.8 percent and 13.1 percent respectively.
The weak growth in China’s imports from Russia could be partly due to the capacity limits of Russia’s natural gas and oil pipelines to China. Meanwhile, U.S. financial sanctions on Russia and China over the Russia-Ukraine war likely had an impact on curbing China-Russia trade on the whole.
2. China’s latest financial data offers no signs that deflationary pressures are easing. This suggests that the CCP authorities will have to rely on large-scale bond issuance to maintain GDP growth and deal with the negative consequences (see here and here) of the move.
Some quick takeaways on the financial data:
i) The increase in social financing in 2024 was 3.32 trillion yuan less than 2023 (down 9.34 percent year-on-year). This reflects an overall weakening of financing demand in the real economy, which appears to be due to slowing economic growth, real estate market adjustments, and a reduced appetite for corporate credit.
The CCP authorities have stepped in to make up for reduced financing activities in the economy by issuing more government bonds. Notably, net government bond financing accounts for 35 percent of the total increase in social financing in 2024, up from 27 percent in 2023.
ii) The growth in M2 was 2.4 percent lower in 2024 than in 2023 and the M1 continued to show negative growth. This suggests that the marginal effect of loose monetary policy has weakened and companies are unwilling to invest.
iii) The lower growth in new RMB loans in 2024, including declines in household and corporate loans, suggests that the economic support measures that Beijing rolled out at the end of September 2024 had a limited impact and real estate demand remains weak.
Meanwhile, decreased household demand for consumer credit and the reluctance of businesses to invest reflect the lack of suitable investment assets in the current economic climate. Therefore, financial institutions are opting to snap up low-yield, risk-free government bonds, a development that has driven down the yield on those bonds to historic lows.
3. The deflationary spiral in China is appearing to resemble the situation in Japan in the 1990s, and investors are increasingly concerned that the country could slide into a decades-long economic malaise. Beijing needs to address China’s demographic crisis, mitigate trade conflicts, and extricate the regime from geopolitical troubles to set the economy on the path to recovery. But the Xi leadership is unlikely to produce adequate solutions and measures to revive the economy as long as it clings to ideology and works within the CCP system.
The PRC’s problems are set to worsen in 2025 with the return of President Donald Trump to the White House and foreign countries becoming more aware and willing to tackle the CCP threat. Instead of a rebound, the Chinese economy will likely see more pain this year.
