1 Post-Chinese New Year data and pandemic news paint bleak economic outlook for China
The release of some official data and reports of viral outbreaks on the mainland towards the end of the Chinese New Year period signal the continuation of troubled times for the CCP.
CPI and PPI
Feb. 9
The PRC National Bureau of Statistics published China’s consumer price index and producer price index for January 2025:
- The national CPI increased by 0.5 percent year-on-year and 0.7 percent from the previous month.
- The national PPI for industrial products and purchasing prices both declined by 2.3 percent year-on-year and 0.2 percent month-on-month.
Marriages plunge in China
Feb. 8
Per data released by the PRC Ministry of Civil Affairs, there were just 6.106 million marriage registrations in 2024, a decrease of 1.574 million (down about 20.5 percent) from the 7.68 million in 2023. Total marriage registrations in 2024 were also lower than those in 2022 (6.835 million) when pandemic restrictions were still in place.
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Ministry of Civil Affairs data shows that marriage registrations have been declining almost every year since 2014. The figure dropped below 10 million in 2019, below 8 million in 2021, and below 7 million in 2022, before rebounding to 7.68 million in 2023.
Outbreaks in China
Reports and information from mainland media, overseas Chinese-language media, and Chinese social media suggest that there is a viral outbreak and/or persisting pandemic of some severity in China. However, the CCP authorities appear to be covering up the situation.
Some noteworthy reports and information include:
i) On Feb. 6, mainland media Dahe Daily reported that the outpatient department of the First Affiliated Hospital of Zhengzhou University (the world’s largest hospital) received a staggering 43,513 patient visits on Feb. 5, the first working day after the Chinese New Year holiday.
ii) On Feb. 8, Dajiyuan (Chinese language edition of The Epoch Times) published a report about the pandemic situation in China that cited several mainland residents:
- Shao, a resident of Xuchang City in Henan Province, told Dajiyuan, “The current outbreak on the mainland is still COVID-19 and the hospitals are packed. The CCP dares not admit (what the virus is) but just calls it Influenza A. Many people have died recently and the crematoriums are backed up. Many of those who passed away suffered from vaccine-related complications.”
- Li, a resident from Beijing, said, “Something particularly terrifying is happening! Those who have passed away (recently) are young people. Their conditions deteriorate rapidly and then they pass away suddenly. This phenomenon is becoming more frequent.” Li added that many crematoriums are overwhelmed with long wait times, while funeral homes do not allow people to take photos or videos.
- Cai, a resident of Zhengzhou City in Henan, said his social media posts about people around him who suffered infections have been repeatedly censored and taken down.
Zhang Wei (pseudonym), an employee of a state-owned enterprise in Chaohu City in Anhui Province, said many have died in his area and the crematoriums are now requiring “red packets” (bribes) to secure a slot.
iii) Reports of overcrowded hospitals and mass deaths have been circulating on Chinese social media:
- A netizen from Anhui Province said she saw a massive crowd at Taihe County Hospital in Anhui’s Fuyang City. She remarked, “The hospital is more crowded after the Chinese New Year than the supermarket was before the [Chinese New Year] holiday.”
- A netizen from Shandong Province recounted that she saw two deaths within 10 minutes in a hospital ward during the Chinese New Year period. She said, “I saw six or seven people go from talking to feeling unwell to being covered with a cloth (i.e. dead). My legs turned to jelly.”
- A netizen from Shandong Province said three or four people that he knew passed away during the Chinese New Year period.
- A rural vlogger from Hebei Province said that three people in his village died in the 20 days before and after the Chinese New Year.
Our take
1. China’s latest CPI and PPI figures indicate that deflationary pressures have carried over from 2024 and are likely to persist this year. The modest uptick in the CPI is likely due to the impact of Chinese New Year spending, and suggests that domestic demand remains weak. Some Chinese economists believe that the CPI could fall or even turn negative in February. Meanwhile, factory-gate prices have remained deflationary for 28 consecutive months even as U.S. importers frontload goods in anticipation of President Donald Trump’s tariffs on Chinese goods. Producer prices may struggle to return to positive territory given the overcapacity in industrial goods, additional U.S. tariffs on Chinese imports, and escalations in the Sino-U.S. trade war.
We believe that Beijing has limited ability to turn around the economy. In our 2025 China Outlook, we wrote that the CCP’s “proactive fiscal policy” and “moderately loose monetary policy” will not do much to reverse deflation and other economic woes in China.
2. China’s declining marriage registrations in 2024 suggest that the demographic crisis in the country is deepening as the economic situation worsens. This could signal to investors that the Chinese economy’s loss of growth momentum will worsen in the coming decades and that China’s economic prospects are bleak. Weakening investor confidence in China would spur outflows and make it harder for the CCP authorities to turn around the economic situation.
3. It is possible that a key factor for persistently weak domestic demand in China is the COVID-19 pandemic having not truly ended in the country. The CCP authorities could also be covering up the circulation of other severe illnesses as they rushed to remove “zero-COVID” restrictions in 2023 and keep China open to attract foreign investments.
If many people are suffering from illnesses of some sort and there are many deaths due to COVID-19 or other viruses, then this would explain the persistent lack of demand in China and why Beijing’s efforts at economic stimulus have been ineffective.
2 Beijing downplays foreign capital exodus, rolls out policies to stem outflows
State Council focuses on foreign investments
Feb. 10
The PRC State Council held an executive meeting to discuss measures to study work related to boosting consumption, review and approve the “2025 Action Plan for Stabilizing Foreign Investment” (2025年穩外資行動方案), study policy measures to resolve structural issues in key industries, and deliberate the draft national development planning law (中華人民共和國國家發展計畫法 [草案]).
The meeting said that foreign-invested enterprises play a crucial role in job creation, stabilizing exports, and promoting industrial upgrading. The meeting called for more practical and effective measures to be introduced to maintain existing foreign investments and attract new investments.
People’s Daily ‘explains’ why foreign investments are leaving China
Feb. 10
Party mouthpiece People’s Daily published an article on its front page titled, “Is Foreign Investment Leaving China on a Large Scale?” (外資有沒有大規模撤離中國?).
The article opened by noting that there is “negative talk” that “foreign investments are leaving China on a large scale” and there was a need to look into the reliability of the view. The article then noted that while an internet search showed that China’s actual utilized foreign investment in 2024 fell by 27.1 percent from the previous year, the number of newly established foreign-invested enterprises also increased by 9.9 percent in 2024. The article added that the two data points appeared to be “contradictory.”
The article then noted that despite frequent rumors of Walmart exiting China, Walmart’s Sam’s Club opened its 52nd store in China in Zhejiang’s Wenzhou City on Dec. 18, 2024. Also, Walmart’s net sales in China grew by 17 percent year-on-year in the third quarter of 2024.
The article claimed that foreign investments are leaving China due to shifts in the market. The article said that traditional business models no longer work in China as consumer demand becomes more personalized and diversified, and with the “strong rise” of domestic retail enterprises. The article added that only foreign companies that quickly adapt to these market changes will succeed.
The article then provides some reasons for why China is seeing a decline in foreign investment:
- In considering the short term, China has attracted over 1 trillion yuan in foreign investments annually for three consecutive years since 2021. This large influx of foreign investments would lead to a concentrated release of investment demand, and therefore the contraction in foreign investments in 2024 is within the normal range.
- In considering the long term, global foreign investment is shifting towards service-oriented and asset-light models. This creates periodic disparities between the scale of utilized foreign capital and the number of newly established enterprises, resulting in declining foreign investments. At present, around 70 percent of foreign investment in China is concentrated in the service sector.
In its conclusion, the article noted that while some foreign enterprises that failed to adapt to the changing Chinese market have pulled out, more foreign investments have flowed into China’s high-tech industry. The article also acknowledged that the politicization of economic and trade issues by some Western countries, coupled with the continued sluggishness of global foreign investment, poses significant challenges for China in attracting foreign capital.
Our take
The CCP authorities’ plan to “stabilize foreign investments” and push back against claims of large scale foreign capital outflows suggest that Beijing is very concerned about the exodus of foreign investments from China, yet wants to save face by spinning tragedy into victory (喪事當喜事報).
1. Beijing had earlier called for “stabilizing foreign investments” during Xi Jinping’s second term when Sino-U.S. trade tensions began to heat up. A Politburo meeting in July 2018 introduced the “six stabilities,” including stabilizing employment, finances, foreign trade, foreign investments, domestic investments, and expectations (穩就業、穩金融、穩外貿、穩外資、穩定投資、穩健預期).
The recent State Council executive meeting dropped “clues” that the effort to “stabilize foreign investments” has not been going well. Aside from approving the “2025 Action Plan for Stabilizing Foreign Investment,” the meeting reiterated the crucial role of foreign capital in China’s economy (supporting employment, stabilizing exports, promoting industrial upgrades, etc.). The meeting also called for all departments to “introduce more practical and effective measures to retain existing investments and attract new ones.” The “clues” revealed at the State Council meeting suggest that the CCP authorities are dealing with severe capital outflows and little new investment. Further, the rollout of a focused plan to “stabilize foreign investments” indicates that foreigners are losing their appetite for investing in China amid deteriorating economic conditions on the mainland, a worsening domestic business environment, the prospect of trade wars, and increasing political risks in China.
2. The People’s Daily piece defending the “bad news” that foreign capital outflows are accelerating presents an incomplete picture of some developments and is suspect in other areas.
First, the article’s claim that China saw substantial foreign investment during the pandemic period (“1 trillion yuan for three consecutive years since 2021”) is accurate, but fails to provide broader context. China was an attractive destination for foreign investors during the earlier years of the COVID-19 pandemic because the PRC was viewed as a “safe haven” with its “zero-COVID” policies. However, the extreme lockdown of Shanghai in 2022 led foreign investors and businesses to recognize the unpredictability of Beijing’s political and economic policies, and sparked outflows as foreigners grew concerned about supply chain risks and regulatory uncertainty.
Foreign investor skepticism about China would increase in the years following the pandemic following the release of official economic data that seemed too good to be true, growing wariness of Beijing’s prioritization of national security over the economy, the deteriorating business environment in China, persistently low government bond yields, and the PRC’s growing geopolitical risks (i.e. China’s continued friendship with Russia after its invasion of Ukraine, concerns over a PLA invasion of Taiwan, worsening Sino-U.S. tensions, etc.).
Second, official CCP data, while certainly manipulated, reflects the trend of foreign capital outflows that the People’s Daily attempted to downplay. The PRC’s latest national economic census (covering up to the end of 2023) saw employment in foreign-invested enterprises in China fall from 28.24 million at the end of 2018 to 20.41 million at the end of 2023 (down 27.7 percent). Meanwhile, the PRC commerce ministry reported that the actual utilized foreign direct investment in 2024 fell by 27.1 percent year-on-year to 826.25 billion yuan. Finally, the State Administration of Foreign Exchange reported that foreign direct investment net inflows in the first three quarters of 2024 were negative $118 billion; this suggests that the full-year figure is likely to be negative also.
Third, the People’s Daily’s claim that there was a 9.9 percent increase in new foreign-invested enterprises in 2024 is suspect in the broader context of foreign investment outflows. It is possible that a significant portion of the new foreign-invested enterprises are fraudulent entities that were set up by Chinese residents to defraud the CCP government of subsidies. Some of these new foreign-invested enterprises could also be Taiwanese businesses that registered as “foreign entities” to obtain financial support from the CCP under its united front policies. Even if the bulk of the new foreign-invested enterprises are above board, the increase in such enterprises does not necessarily translate into an increase in foreign investments to China.
What’s next
The trend of foreign capital exodus from China is unlikely to reverse amid worsening economic conditions on the mainland, sustained Sino-U.S. “great power” competition, and increased global awareness about the CCP threat.
