China, now the world’s second-biggest economy, is expected to overtake the United States as the world’s largest economy by 2030, according to the report.
Has China’s GDP surpassed that of the United States?
According to the Chinese Communist Party’s narrative, “the east is rising, the west is declining” (CCP). Many people outside of China take China’s “inevitable rise” for granted. On its road to becoming a “modern socialist country” by 2035, and affluent, powerful, and dominant by 2049, the People’s Republic’s centennial, China wants to gloat about its GDP surpassing that of the US, and project its influence based on its growing economic clout.
However, there is a serious fault in this story. As it falls into the proverbial middle-income trap, China’s economy may fail to overtake that of the United States. This is the point at which a country’s relative development advancement in comparison to richer countries halts, and it is usually marked by severe economic adjustment and often unanticipated political implications.
China’s development miracle has been exceptional throughout history. In the 30 years leading up to 1990, China’s money GDP (the market value of goods and services generated in an economy) and the US’s money GDP (the market value of goods and services produced in an economy) increased at almost the same rate of slightly over 6% and 8% per year, respectively. However, over the next three decades, China’s GDP increased by more than 13 percent, while the US’s decreased by half to 4.5 percent. As a result, China’s GDP increased from 5% to 66 percent of American GDP.
However, China’s economic boom has ended, and the large discrepancy in GDP growth has vanished. China’s GDP has grown at half the rate of the United States in recent quarters. Although the gap is likely to widen, the US’s predicted $7 trillion GDP advantage over China in 2021 suggests that similar rates of GDP growth in the future will maintain and potentially widen the gap. A Japanese think tank recently raised the deadline for China to overtake the United States from 2029 to 2033. Deferrals like this are increasingly commonplace, and there will be more in the future.
Is the US economy expanding faster than China’s?
With the fastest economic growth in over four decades and the greatest year of job growth in American history, the GDP results for my first year illustrate that we are finally constructing an American economy for the twenty-first century. Our economy expanded faster than China’s for the first time in 20 years.
This isn’t a coincidence. To assist our companies become more competitive, my economic policy focuses on creating excellent jobs for Americans, restoring our manufacturing sector, and improving our supply chains here at home.
Americans are now able to find better jobs with greater salary and benefits. Layoffs are at an all-time low.
With recent announcements from Intel in Ohio and GM in Michigan, companies are investing in new manufacturing lines and plants in the United States. In America, we’re remaking the future.
Since 2019, the number of new small company applications has climbed by more than 30%. Americans are once again dreaming, believing in themselves and in their country.
We are finally constructing a 21st-century American economy, and I urge Congress to keep the momentum going by passing legislation to improve America’s competitiveness, strengthen our supply chains, strengthen manufacturing and innovation, invest in our families and clean energy, and lower kitchen table costs.
Is the Chinese economy doomed by 2021?
China’s economy grew at an annual rate of 8.1 percent in 2021, but Beijing is under pressure to boost activity following a sharp downturn in the second half. 5:53 a.m., January 17, 2022
What would happen if the United States stopped doing business with China?
- If the US sells half of its direct investment in China, it might lose up to $500 billion in one-time GDP. In addition, capital gains of $25 billion per year would be lost by American investors.
- If Chinese tourist and education spending falls to half of what it was before the coronavirus outbreak, $15 billion to $30 billion in annual export services trade will be lost.
The 92-page report was started in 2019, before the coronavirus outbreak wreaked havoc on the global economy.
Tensions between the United States and China have risen in the last three years as a result of former President Donald Trump’s policies. Long-standing complaints about China’s lack of intellectual property rights, forced technology transfers, and considerable role of the state in commercial operations were addressed by his administration through tariffs, sanctions, and increased inspection of cross-border financial flows.
Who has a more prosperous economy? America or China?
China’s GDP is expected to reach $15.92 trillion in 2020, according to market research firm IHS Markit, with export manufacturing growth and funding for new projects pushing it over $18 trillion last year. According to the market research organization, the US GDP hit $23 trillion last year.
Economists predict that the country, which has already been recognized for rapid economic growth over the previous 20 years, would see the government acquire more control over important industries after intervening in others, including the internet, in 2021.
Is China more advanced than the United States?
- The gross domestic product (GDP) or gross national income (GNI) per capita, the level of industrialization, the overall standard of life, and the amount of technological infrastructure, among other characteristics, can all be used to classify a country as developed or developing.
- A country’s development status, according to the United Nations (UN), is a reflection of its “fundamental economic country conditions.”
- The UN’s human development index (HDI) is a statistic that is used to analyze a country’s social and economic development levels based on life expectancy, educational attainment, and income. It is a different way of analyzing a country’s development status.
- With a total GDP of $21,433.23 billion, the United States was the richest developed country on the planet in 2019.
- With a total GDP of $14,279.94 billion, China was the richest developing country on the planet in 2019.
What will the state of the US economy be in 2021?
While GDP fell by 3.4 percent in 2020, it increased by 5.7 percent in 2021, the fastest pace of growth since 1984. With a total GDP of $23 trillion, the United States remains the world’s richest country. In addition, average hourly wages have risen 10% from $28.56 in February 2020 to $31.40 in December 2021.
Is China exaggerating its GDP?
The Federal Reserve Bank’s researchers feel China’s GDP statistics is “overstated,” but for a different reason. They explained that this is due to the fact that the country’s economic data system is still a “work in progress.”
“The reality is that China’s economic growth is more difficult to capture as efficiently as growth in industrialized countries.”
However, some argue that China’s unprecedented economic growth has a more straightforward cause.
“What it does rely on is producing economic results – that is the Chinese Communist Party’s implicit commitment with the Chinese people.”
“They’re under a lot of pressure to generate genuine results, so when the economy falters, China’s leadership is almost certain to respond with stimulus.”
Is China’s economy expanding?
According to preliminary data released by the International Monetary Fund (IMF) in January 2022, China’s real gross domestic product (GDP) increased by roughly 8.1 percent in 2021, somewhat higher than the IMF’s previous prediction in October 2021. (8.0 percent).
China’s Economy Prior to Reforms
Prior to 1979, China had a centrally planned, or command, economy under Chairman Mao Zedong’s direction. The state directed and controlled a substantial portion of the country’s economic output, setting production objectives, controlling prices, and allocating resources across the sector. All of China’s individual household farms were collectivized into big communes in the 1950s. During the 1960s and 1970s, the central government made large-scale expenditures in physical and human capital to promote rapid industrialization. As a result, by 1978, over three-quarters of industrial output was produced by centrally controlled, state-owned enterprises (SOEs), with output targets set centrally. Private businesses and foreign-owned businesses were typically prohibited. The Chinese government’s main goal was to make China’s economy largely self-sufficient. In general, foreign trade was confined to obtaining items that could not be manufactured or obtained in China. The economy was distorted as a result of such practices. There were few incentives for firms, workers, and farmers to become more productive or concerned about the quality of what they produced because most aspects of the economy were managed and run by the central government. As a result, there were no market mechanisms to efficiently allocate resources, and thus there were few incentives for firms, workers, and farmers to become more productive or concerned about the quality of what they produced (since they were mainly focused on production goals set by the government).
China’s real GDP grew at an average annual rate of 6.7 percent from 1953 to 1978, according to Chinese government statistics, though the accuracy of these figures has been questioned by many analysts, who contend that Chinese government officials (especially at the subnational levels) often exaggerated production levels for a variety of political reasons during this time. China’s actual average yearly real GDP growth during this period, according to economist Angus Maddison, was around 4.4 percent. 5 Furthermore, China’s economy experienced significant downturns under Chairman Mao Zedong’s leadership, including during the Great Leap Forward from 1958 to 1962 (which resulted in a massive famine and the deaths of up to 45 million people)6 and the Cultural Revolution from 1966 to 1976 (which resulted in a massive famine and the deaths of up to 45 million people) (which caused widespread political chaos and greatly disrupted the economy). China’s per capita GDP doubled between 1950 and 1978 on a purchasing power parity (PPP) basis,7 a typical indicator of a country’s living standards. However, Chinese living standards declined by 20.3 percent between 1958 and 1962, and by 9.6 percent between 1966 and 1968. (see Figure 1). Furthermore, as seen in Figure 2, the rise in Chinese living standards paled in contrast to those in the West, such as Japan.
The Chinese government decided to break with its Soviet-style economic policies in 1978 (shortly after Chairman Mao’s death in 1976) by gradually reforming the economy according to free market principles and opening up trade and investment with the West, in the hopes of significantly increasing economic growth and raising living standards. “Black cat, white cat, what does it matter what color the cat is as long as it catches mice?” said Chinese leader Deng Xiaoping, the architect of China’s economic reforms. 8
The Introduction of Economic Reforms
China started a series of economic reforms in 1979. Farmers were given price and ownership incentives by the central government, allowing them to sell a portion of their harvests on the open market. Furthermore, the government developed four special economic zones along the coast to attract international investment, increase exports, and import high-tech products into China. Additional reforms, implemented in stages, aimed to decentralize economic policymaking in a number of areas, including trade. Provincial and municipal governments were given economic control of diverse firms, and they were generally allowed to operate and compete on free market principles rather than under the direction and guidance of state planning. Citizens were also encouraged to create their own enterprises. More coastal cities and regions have been classified as open cities and development zones, allowing them to experiment with free-market reforms and give tax and trade advantages to attract international investment. Furthermore, state pricing controls on a variety of products were gradually phased off. China’s economic growth was also aided by trade liberalization. Trade obstacles were removed, allowing for more competitiveness and FDI inflows. China’s incremental economic reforms aimed to determine which policies had positive economic effects (and which did not) so that they might be replicated across the country, a process Deng Xiaoping famously referred to as “crossing the river by touching the stones.” 9
China’s Economic Growth and Reforms: 1979-the Present
China’s economy has developed significantly quicker since economic reforms were implemented, and the country has avoided serious economic upheavals for the most part. 10 China’s annual real GDP averaged 9.5 percent from 1979 to 2018. (see Figure 3). As a result, China’s economy has been able to double in size in real terms every eight years on average. The worldwide economic slowdown that began in 2008 had a major influence on China’s economy. Early in 2009, Chinese media stated that 20 million migrant workers had returned home after losing their jobs due to the financial crisis, and that real GDP growth in the fourth quarter of 2008 had slowed to 6.8% year-on-year. The Chinese government responded by enacting a $586 billion stimulus program geared primarily at supporting infrastructure and relaxing monetary policy to boost bank lending. 11 As a result of these efforts, China was able to mitigate the consequences of a dramatic drop in worldwide demand for Chinese goods. China’s real GDP growth averaged 9.7% from 2008 to 2010. However, throughout the next six years, the rate of GDP growth fell, falling from 10.6 percent in 2010 to 6.7 percent in 2016. In 2017, real GDP increased to 6.8%, but fell to 6.6 percent in 2018. (although it rose to 6.8 percent in 2017). China’s real GDP growth will decelerate each year over the following six years, according to the IMF’s April 2019 World Economic Outlook, falling to 5.5 percent in 2024. (Figure 4). 12 Many analysts warn that if the US and China continue to apply punitive economic measures against each other, such as tariff rises resulting from US Section 301 action and Chinese retaliation, China’s economic development may decelerate even further. Increased tariffs on all trade between the US and China, according to the Organization for Economic Cooperation and Development (OECD), could cut China’s real GDP by 1.1 percent in 2021-2022, compared to the OECD’s baseline economic predictions. 13
Figure 4: China’s Real Annual GDP Growth from 2007 to 2018, with Forecasts through 2024
Causes of China’s Economic Growth
Much of China’s quick economic growth is attributed to two key factors: large-scale capital investment (funded by substantial domestic savings and foreign investment) and rapid productivity growth, according to economists. These two elements appear to have worked in concert. Economic changes strengthened the economy’s efficiency, resulting in more output and more resources for new investment.
China has a long history of having a high savings rate. Domestic savings as a percentage of GDP was at 32 percent when reforms began in 1979. During this time, however, the majority of Chinese savings were generated through SOE earnings, which were utilised by the central government for domestic investment. Economic reforms, which included decentralization of economic output, resulted in significant increases in both family and business savings in China. As a result, China has the largest gross savings as a proportion of GDP among major economies. China has been able to support a high level of investment due to its substantial domestic savings. In fact, China’s gross domestic savings greatly outnumber its domestic investment, making it a significant net worldwide lender.
Productivity gains (i.e., advances in efficiency) have been identified as another important element in China’s rapid economic growth by a number of experts. Productivity gains were mostly due to a reallocation of resources to more productive uses, particularly in industries like agriculture, trade, and services that were formerly tightly regulated by the government. Agricultural reforms, for example, increased output, allowing employees to pursue jobs in the more productive manufacturing sector. Non-state companies (such as private corporations) arose as a result of China’s economic decentralization, which tended to pursue more productive activities than centrally controlled SOEs and were more market-oriented and efficient. Furthermore, a larger portion of the economy (mostly the export sector) was subjected to competitive dynamics. Local and provincial governments were given unrestricted authority to form and operate businesses without intervention from the federal government. FDI also introduced new technology and procedures to China, which increased efficiency.
However, as China’s technological development converges with that of major developed countries (i.e., through the adoption of foreign technology), productivity gains and, as a result, real GDP growth may slow significantly, unless China becomes a major center for new technology and innovation and/or implements new comprehensive economic reforms. Several developing economies (most notably in Asia and Latin America) experienced rapid economic development and growth in the 1960s and 1970s by implementing some of the same policies that China has used to develop its economy to date, such as measures to boost exports and promote and protect specific industries. However, at some point throughout their development, some of these countries began to face protracted economic stagnation (or substantially slower growth than prior levels), a situation known as the “middle-income trap” by economists. 14 This means that while several developing (low-income) economies were able to transition to a middle-income economy, they were unable to transition to a high-income economy due to their inability to sustain high levels of productivity gains (in part due to their inability to address structural inefficiencies in the economy). 15 China may be at a comparable fork in the road right now. The World Bank uses a per capita gross national income (GNI) approach to classify economic development levels. 16 According to the World Bank, China transitioned from a low-income to a low-middle-income economy in 1997, and then to an upper-middle-income country in 2010. China’s per capita GNI in 2017 was $8,690, which was 38.7% below the amount required to become a high-income economy. According to the Chinese government, China will be able to cross the high-income level by 2025. It intends to accomplish this, in part, by making innovation a key source of future economic growth. Skeptics argue that China’s innovative development will be difficult to achieve, particularly if it is primarily state-driven and imposes new limitations on foreign companies.
Notes: The red bar represents the level at which China would need to achieve in order to become a high-income economy.
According to the Economist Intelligence Unit (EIU), China’s real GDP growth will drop significantly over the next several decades, eventually catching up to US growth rates by 2037. (U.S. and Chinese real GDP growth rates are both projected at 1.9 percent ). For a few years after that, the EIU expects US GDP growth to outpace China’s (Figure 6). 17
Figure 6: Annual Real GDP Growth Rates in the United States and China from 2010 to 2018 and Projections to 2050
The Chinese government has expressed a desire to shift away from its existing economic model of “rapid growth at any cost” to more “smart” growth, which aims to minimize reliance on energy-intensive and high-polluting industries in favor of high technology, renewable energy, and services. China has also stated that it wishes to achieve more balanced economic growth. (These topics are covered in greater depth later in the report.)