Mark Perry reminds out that, despite China’s enormous GDP, its GDP per capita remains low due to the country’s large population (1.33 billion people).
While Perry is true in his assessment, the difficulty is that he does not comprehend the implications of this fact. He claims that it still has a long way to go before it can be considered a “superpower.” However, having a high per capita income has never been a prerequisite for “superpower” status. If it did, countries like Qatar, Luxembourg, and Liechtenstein would be superpowers, and no one ever talks about them in that light. Total GDP indicates what one may call “superpower” status, whereas per capita GDP measures how wealthy the average citizen is.
Furthermore, China’s low per capita GDP is a major reason why the country is almost guaranteed to overtake the United States. Someone once asked me how I was so sure that my prediction that China would almost surely surpass the United States in total GDP wouldn’t turn out to be as incorrect as similar projections made about Japan in the late 1980s. My response was straightforward: China has more than ten times the population of Japan.
Because China has more than four times the population of the United States, it is not essential to assume that China will achieve the same per capita income as the United States in order for China to exceed the United States in total GDP. It is sufficient to suppose that China will achieve a per capita income equal to one-quarter of that of the United States. And, given that per capita income in Hong Kong and Singapore, and to a lesser extent Taiwan, is significantly higher than in other majority-Chinese countries, that is surely not something that Chinese people are incapable of achieving.
Why is China’s per capita income still so low?
Because all of that money is distributed among a population 4-5 times the size of the United States, each person is naturally 1/4-1/5 as affluent as an American.
Is China’s per capita income low?
From 1960 to 2020, China’s GDP per capita averaged 2456.45 dollars, with a high of 10430.73 dollars in 2020 and a low of 163.91 dollars in 1962.
What does it signify when a country’s GDP per capita is low?
As a metric, the GDP per capita GDP per capita is a widely used indicator of a country’s level of living, prosperity, and overall well-being. A high GDP per capita suggests a high quality of life, while a low GDP per capita indicates that a country is struggling to meet its citizens’ basic needs.
Why does the US have a higher GDP per capita than China?
In both nominal and PPP terms, the United States and China are the world’s two largest economies. The United States leads in nominal terms, while China has led in PPP terms since 2017, when it overtook the United States. In nominal and PPP terms, both countries account for 41.89 percent and 34.75 percent of global GDP in 2021, respectively. Both countries have much bigger GDPs than the third-placed countries, Japan (nominal) and India (PPP). As a result, only these two are competing for first place.
According to IMF forecasts for 2021, the United States will be ahead by $6,033 billion, or 1.36 times, in terms of exchange rates. On a purchasing power parity measure, China’s GDP is worth $3,982 billion dollars, or 1.18 times that of the United States. According to World Bank estimates, China’s GDP was approximately 11% of that of the United States in 1960, but is now 67 percent in 2019.
Due to China’s enormous population, which is more than four times that of the United States, the gap in per capita income between the two countries is enormous. In nominal and PPP terms, the United States’ per capita income is 5.78 and 3.61 times that of China, respectively. The United States is the world’s fifth richest country, while China is ranked 63rd. On a PPP basis, the United States ranks eighth, while China ranks 76th.
China’s GDP growth rate reaches a high of 19.30 percent in 1970 and a low of -27.27 percent in 1961. Between 1961 and 2019, China experienced a 22-year growth rate of greater than 10%. In 1984, the US hit an all-time high of 7.24 percent, while in 2009, it hit a new low of -2.54 percent. For the first time in eight years, the United States’ GDP growth rate was negative. In the last four years, China has experienced negative growth.
China is ahead of the United States in the agriculture and industry sectors, according to the World Factbook. Agriculture output in the United States is only 17.58 percent of China’s, whereas industry output is 77.58 percent. The US services industry is more than double that of China.
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.)
Is China’s per capita income high?
China’s per capita GDP was only approximately a quarter of that of the major industrialized countries by 2020. China ranks first among BRIC countries in terms of GDP per capita when compared to other rising markets.
How does China calculate its GDP?
CHICAGO, IL China’s economic reporting places far too much emphasis on overall GDP and not nearly enough on per capita GDP, which is a more telling measure. And this distorted coverage has serious ramifications, as the two indices offer starkly different portraits of China’s current economic and political condition. They also draw our attention to certain situations.
A cursory scan of all English-language news sites in the ProQuest database from 2011 to 21 reveals that 20,915 stories cited China’s GDP, but only 1,163 mentioned GDP per capita. The disparity was even more pronounced among the eight most prestigious newspapers, including the New York Times, Wall Street Journal, and Washington Post, where 5,963 articles mentioned Chinese GDP but only 305 mentioned GDP per capita.
China’s GDP of $14 trillion (calculated at market exchange rates) was the world’s second highest in 2019, after only the United States ($21 trillion) and Japan ($5 trillion). The overall resources available to a government, including the tax base, are reflected in aggregate GDP. This is useful when considering the scale of China’s public investments, such as its space program or military capabilities. However, it has a considerably smaller impact on Chinese people’s daily life.
Is China a developing nation?
GDP growth has averaged about 10% per year since 1978, when China began to open up and reform its economy, and more than 800 million people have been pulled out of poverty. Over the same time span, there have been tremendous gains in access to health, education, and other services.
China has risen to the status of an upper-middle-income country.
Going forward, it will be critical that poverty alleviation initiatives progressively focus on the vulnerabilities faced by the significant number of individuals still considered poor by middle-income country criteria, including those residing in cities.
China’s rapid growth, which has been fueled by resource-intensive manufacturing, exports, and low-wage labor, has mostly reached its limitations, resulting in economic, social, and environmental imbalances. To address these inequities, the economy’s structure must transition from low-end manufacturing to higher-end manufacturing and services, as well as from investment to consumption.
In the face of structural restrictions such as decreased labor force growth, reduced returns on investment, and slowing productivity, growth has slowed in recent years. The task now is to discover new growth drivers while also dealing with the social and environmental consequences of China’s prior development path.
China’s rapid economic expansion has outpaced institutional development, and there are significant institutional and reform gaps that must be addressed in order for China to maintain a high-quality and long-term growth path. To further support the market system, the state’s role must evolve and focus on delivering stable market expectations and a clear and fair business climate, as well as strengthening the regulatory system and the rule of law.
Because of its size, China is at the center of major regional and global development challenges. China is the world’s greatest emitter of greenhouse gases, with per capita emissions currently surpassing those of the European Union, although being slightly lower than the OECD average and far lower than the United States, and its air and water pollution has an impact on neighboring countries. Without China’s participation, global environmental issues will remain unsolvable. Furthermore, maintaining adequate economic growth has substantial spillover effects on the rest of the international economy.
Many of China’s difficult development challenges, such as transitioning to a new growth model, increasing aging, developing a cost-effective health system, and promoting a lower-carbon energy route, are applicable to other countries. Through trade, investment, and ideas, China is exerting a rising effect on other developing countries.
Following 2.3 percent real GDP growth in 2020, China’s economy is expected to increase by 8.5 percent in 2021, mainly to base effects. The pace of growth is decreasing, owing to the lingering effects of policy and macroprudential tightening, as well as floods and the latest Delta epidemic. Although lingering stricter restrictions and cautious sentiment as a result of the recent Delta outbreaks would weigh on consumption recovery, their impact is projected to be mainly compensated in the second half of the year by robust foreign demand and moderate policy support. The near-term risks have shifted to the downside, with the main concern being recurrent outbreaks caused by more transmissible COVID-19 mutations, which might cause major economic upheaval. Given unfavourable demographics, sluggish productivity growth, and the legacies of excessive borrowing and pollution, China’s economy faces structural challenges in the medium term. Short-term macroeconomic policies and structural reforms aiming at reinvigorating the shift to more balanced, high-quality growth are needed to address these difficulties.
The administration recently emphasized promoting common prosperity as a fundamental economic goal, indicating a likely shift in policy objectives toward addressing income disparity. Over the medium run, policies aimed at reducing high inequality through more equitable taxes and a reinforced social security system will result in long-term poverty reduction, a greater middle class, and increased private consumption as an economic driver.
What causes Burundi’s poverty?
Burundi’s economy is primarily reliant on agriculture, which contributed 32.9 percent of GDP in 2008. Burundi is a landlocked country with limited resources and an underdeveloped manufacturing sector. Agriculture employs more than 70% of the workforce, with the bulk comprising subsistence farmers.
Despite the fact that Burundi has the ability to be self-sufficient in food production, persistent civil strife, overpopulation, and soil erosion have all led to the subsistence economy contracting by 25% in recent years. Large numbers of internally displaced people are unable to generate their own food and rely heavily on foreign humanitarian aid. In 1997, food accounted for 17 percent of Burundi’s imports, making it a net food importer.