Breakdown of China's GDP Growth by Component
The central issue in the February 8 House of Representatives election should be how to respond to the "China threat." As China sinks deeper into economic stagnation, Xi Jinping — General Secretary of the Chinese Communist Party and President — has stepped up an external offensive spanning economic, diplomatic, and military domains.
His recent purge of the most senior People's Liberation Army officers, consolidating direct control over the military, highlights a growing sense of urgency in Beijing.
According to China's National Bureau of Statistics, nominal GDP growth for 2025 is projected at around 4%, while real growth is expected to reach 5%. This meets the Xi administration's official target.
Even taking these figures at face value, a 5% real growth rate would far exceed Japan's near-zero growth and outpace the United States, which is expanding at roughly 2%.
The Growth Mirage
However, a closer examination of the underlying data tells a different story. When key GDP components are extracted from the Bureau's extensive datasets, China's actual growth rate appears significantly weaker than the headline figures suggest.
The graph is based on the author's own calculations of growth contributions from the three main components of GDP: fixed asset investment, net exports (the trade balance of goods and services), and household consumption.
When these estimated contributions are combined, they point to a nominal growth rate of just 1.1% for 2025 — far below the 4% reported by the National Bureau of Statistics.
Similar discrepancies were evident in 2022 and 2023, although the gap was considerably narrower than what appears in the 2025 data.
Inside Beijing's GDP Accounting
China's GDP figures are compiled on the production side. They are calculated by aggregating gross value added, essentially the gross profits of businesses, across the primary, secondary, and tertiary sectors in each administrative region. The National Bureau of Statistics performs the final calculation.
Party secretaries in each region seek to meet the growth targets set by the Chinese Communist Party's Central Politburo at the end of the previous year for the year ahead.
In Japan, the United States, and Europe, GDP statistics are compiled primarily on the demand side, based on consumption, investment, and net exports. But in China, demand-side GDP data is released much later, typically in mid-June. By then, the figures are adjusted to align with the headline numbers announced in January.
A prominent Chinese economist who exposed possible manipulation of China's growth data while visiting Washington was accused of violating the Chinese Counter-Espionage Law in December 2024. He was later pushed out of the financial industry in the mainland, a move that sent a chilling signal to other analysts.
There are also suggestions that officials at the National Bureau of Statistics view the inflated growth figures as data intended primarily for external audiences. Some argue that the aim is to ensure senior Party leaders have access to more accurate data for internal review.
What the Data Reveals
As noted earlier, the National Bureau of Statistics already compiles the underlying raw data that sheds light on demand conditions by the time it releases the January GDP figures.
Even the Party Central Committee understands that policy decisions cannot be based on false GDP figures. It also knows that misreading the nation's fundamental economic conditions would carry grave consequences, including the risk of losing a war.
The most striking features of the graph are the sharp rise in the contribution of net exports, reflected in a growing trade surplus, and the steep decline in fixed asset investment.
Fixed asset investment mainly consists of real estate development, including housing, infrastructure projects, and corporate capital expenditure.
After Xi consolidated effective control of the Party in the fall of 2012, China sustained a period of relatively high growth. This expansion was driven largely by real estate development. Fixed asset investment, led by housing, for instance, peaked at about 78% of GDP in 2016.
Xi's Diversionary Tactic
The housing bubble, however, began to deflate in 2021.
Since then, the downturn following the burst of the housing bubble has deepened deflationary pressures, which persist today. Household consumption continues to drop.
In response, Xi has prioritized concentrated investment and expanded production in what the leadership calls "new quality productive forces," including electric vehicles and solar panels.
This strategy, however, has resulted in severe overcapacity. In many cases, firms incur greater losses the more they produce. As a result, investment in industrial sectors such as manufacturing has also begun to slow.
Fixed asset investment, once the main engine of growth, fell 5.7% year-on-year in 2025, including in the industrial sector. Its share of GDP dropped sharply to 34.6%.
As housing prices fall, households are cutting back on consumption, leaving exports as one of the few remaining sources of growth. Beijing has therefore doubled down on outward expansion through projects such as the Belt and Road Initiative, Xi's flagship effort to build an expansive economic and strategic sphere abroad.
This external push serves two purposes: offsetting mounting domestic economic failures and reinforcing Xi's political narrative ahead of his expected fourth term in late 2027.
Japan's Moment of Choice
The US initially sought to counter China's export drive through high tariffs under the Trump administration, but with limited effect. More recently, Washington has shifted toward targeting key nodes of Beijing's overseas economic network.
In early 2026, it moved to cut off China's access to Venezuela, a central hub for Belt and Road activity in Latin America.
Meanwhile, Xi has stepped up economic pressure on Japan, including restrictions on rare earth exports and the suspension of group tourism. He likewise has made overtures to South Korea, Canada, and Europe to deepen economic ties.
In parallel, Xi has carried out purges of senior military leaders as he moves to secure maritime dominance in East Asia and prepare for the annexation of Taiwan.
In the upcoming House of Representatives election, Prime Minister Sanae Takaichi is seeking to strengthen her political footing against China through a decisive victory. Yet her approach has been strikingly restrained. The lead opposition Centrist Reform Alliance, meanwhile, has narrowed its message almost entirely to consumption tax cuts.
It's not too late to change course. Regardless of party affiliation, any political force serious about governing should unite in elevating "China threat" as the central issue of this election.
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Author: Hideo Tamura, The Sankei Shimbun
(Read this in Japanese)
