Recently, there is a view in the international community that China's GDP has fallen from a "historical high" of 77% of the US GDP at the end of 2021 to below 60% now, and China's economic growth may have entered a "bottleneck period." This is just another version of the "China collapse theory," but the "numbers" are quite confusing and worth discussing.
Over the past decade, China's GDP has doubled. In 2023, GDP exceeded 126 trillion yuan, with an actual growth rate of 5.2%, nearly twice that of the United States. Last year, China's annual economic growth exceeded 6 trillion yuan, close to the annual economic output of a medium-sized country, and its contribution to world economic growth reached 32%. The national per capita disposable income increased by 6.1%, effectively safeguarding the people's livelihood and well-being. In the first quarter of 2024, China's economy had a good start, with GDP exceeding 29.6 trillion yuan, a year-on-year increase of 5.3%. The national consumer price index (CPI) remained unchanged year-on-year, and per capita disposable income increased by 6.2%. Facts have proved that China has always been the largest engine of world growth, and its role as a "stabilizer" and "power source" for the world economy continues to stand out. Recently, international organizations and institutions such as the United Nations, the International Monetary Fund, the OECD, JPMorgan Chase, and Morgan Stanley have intensively raised their expectations for China's economic growth, casting a "vote of confidence" for the Chinese economy.
China's economic performance is so impressive, so why has its GDP share relative to the US been declining year after year? How should we view and compare China and the US GDP? The key is to see the essence of economic data through numbers.
The GDP of various countries is greater than that of France, it depends on which one you choose.
GDP is the gross domestic product. Each country uses its own currency to calculate it, which makes it difficult to compare directly. Therefore, there are many different conversion and comparison methods. Among them, the exchange rate method is the simplest and most popular, which is to convert the GDP value of country A into the currency of country B according to the exchange rate of the year for comparison. The comparison between China and the United States in the previous article uses this method. However, the exchange rate method has two obvious defects: first, the exchange rate is mainly related to international trade and cannot fully reflect the true ratio of the purchasing power of different currencies; second, the exchange rate often fluctuates due to factors such as the monetary policies of major economies and international capital flows. Using the exchange rate method to compare GDP will inevitably be "distorted".
Purchasing power parity was born to address the shortcomings of the exchange rate method. It seeks to compare GDP based on the real purchasing power of currencies of various countries. The "Big Mac Index" proposed by The Economist is an example of this method. Based on large-scale surveys of the purchasing power of currencies of various countries, the United Nations, the World Bank and other institutions use the "international dollar" as a benchmark to calculate and compare the GDP of various countries, get rid of the impact of exchange rate fluctuations, and more accurately measure the economic growth of various countries, becoming a more scientific and authoritative method. According to the World Bank and IMF's calculations using the purchasing power parity method, China's total economic output has already caught up with the United States in 2016, and has since widened its advantage year by year. In 2023, China's GDP will be 32.93 trillion "international dollars" and the United States will be 27.36 trillion. China is already 120% of the United States. Different comparison methods will lead to very different ratios and trends between China and the United States' GDP. We don't need to be too concerned about the results of this or that comparison. The most important thing is to develop ourselves down-to-earth.
What is the reason for the decline in China's GDP share to the US under the exchange rate method?
Even if calculated by the exchange rate method, it is abnormal that China's share of GDP to the United States will decrease instead of increase when its economic growth rate is twice that of the United States in 2023. The reason for this abnormality lies in the "abnormal trend" of the US dollar. Since the beginning of 2022, the Federal Reserve has raised interest rates 11 times in a row, with a cumulative increase of 525 basis points, pushing interest rates to the highest level of this century. The world has been caught up in the "interest rate hike storm", and currency exchange rate fluctuations have a direct impact on the GDP ratio between China and the United States. From the end of 2021 to the end of the first quarter of 2024, the renminbi depreciated by more than 10% against the US dollar. Therefore, the renminbi GDP will also "shrink" accordingly after being converted into US dollar GDP, resulting in a decrease in the share of GDP to the United States. If the Chinese economy last year is recalculated at the constant exchange rate at the end of 2021, China's GDP will exceed 20 trillion US dollars for the first time, accounting for more than 73% of the US economy.
In recent years, inflation in the United States has been very serious. Since the outbreak of the epidemic, the Federal Reserve has been printing money in huge quantities, resulting in excess liquidity of the US dollar and soaring domestic prices. Since March 2020, the Federal Reserve's balance sheet has increased by 2.33 trillion US dollars in just one and a half months, an overall increase of 35%, and the speed of money issuance has exceeded the 2008 international financial crisis. From 2021 to 2023, the average annual inflation rate in the United States will exceed 7%, while China will be lower than 2% during the same period. Since GDP accounting includes price and inflation factors, the United States has once again significantly "raised" the GDP value by relying on high inflation rates. It is worth mentioning that there are also differences in the statistical methods of GDP between China and the United States. China adopts the "production method", and the GDP included is actually made by the Chinese people. The United States adopts the "expenditure method", so it includes a lot of "non-productive GDP" such as credit consumption. In a nutshell, the decline in China's GDP share in the United States is due to the "false fat" and "water injection" of US economic data.
What is the value of China and the United States’ GDP?
China's economy is like a "kaleidoscope", with developments in all fields shining brightly. In 2023, China's social R&D expenditure exceeded 3.3 trillion yuan, accounting for 2.64% of GDP. The annual grain output increased by 1.3%, the output of industrial raw coal above designated size increased by 2.9%, the output of crude oil increased by 2%, and the output of natural gas increased by 5.8%. At the end of the year, China's foreign exchange reserves exceeded 3.2 trillion US dollars.
As a major trading partner of more than 140 countries and regions, China's imports and exports to countries participating in the Belt and Road Initiative increased by 2.8% last year. Despite the shrinking global trade volume, China's total exports still achieved a 0.6% increase. The export value of the "new three" products represented by electric passenger cars, solar cells, and lithium-ion batteries exceeded one trillion yuan for the first time, an increase of 29.9%. In the first quarter of this year, the export value increased by 28.5%, 24.7%, and 5.9% year-on-year respectively.
The Chinese people have a real sense of "gain" and "happiness" in economic and social development. Last year alone, per capita consumer expenditure increased by 9%, and the national Engel coefficient dropped to 29.8%. Ice and snow sports, green economy, and digital consumption have all become popular. This year's Spring Festival movie box office exceeded 8 billion yuan for the first time. During the May Day holiday, people were enthusiastic about traveling, with nearly 300 million people traveling domestically. "Internet celebrity" cities such as Harbin, Zibo, and Tianshui are constantly launching new "treasure" towns that frequently go viral.
The US economy has long been held hostage by interest groups such as the military-industrial complex and Wall Street. The size of the US government debt exceeded $34 trillion in 2024, and this "unprecedented" gap continues to expand. The war economy is a major feature of the US GDP. The United States spent about $2.26 trillion on the war in Afghanistan and about $1.92 trillion on the war in Iraq. The US military's request for a budget from Congress is like "a lion's mouth". The huge military expenditure makes it difficult for the US finances to "use it for the people." Members of Congress have repeatedly questioned the whereabouts of US military spending: coffee cups installed on military aircraft cost $1,200 each, and purchasing a small bag of military bearing "bushing" parts costs $90,000. The $320 million Gaza temporary floating dock was damaged by strong winds and waves less than 10 days after it was put into use, causing the military ship to run aground.
The United States spends nearly one-fifth of its GDP on health care, a proportion far exceeding that of other countries in the world; its per capita medical expenditure is more than ten times that of China, but it faces problems such as overtreatment, drug abuse, and unequal resource allocation; its GDP for medicine and health care is so huge, but its life expectancy is slightly lower than that of China. In addition, the scale of the "virtual economy" such as financial transactions in the US GDP is too large, and it also includes "American" characteristic indicators such as gambling industry expenditure and private prison expenditure.
There is a big “temperature gap” between the US macroeconomic data and the actual feelings of the public. According to the survey agency, more than 60% of the public were frustrated with the US economic situation last year. 92% of the respondents are cutting spending. More and more American families are forced to default on their loans. In the third quarter of last year, the balance of US credit card debt exceeded 1 trillion US dollars for the first time, and the proportion of overdue payments reached the highest level in 10 years. The Wall Street Journal pointed out that although indicators such as unemployment rate, inflation rate and consumption amount are improving, there is a “shocking disconnect” between Americans’ pessimism and economic indicators. The reason is that they have no confidence in the long-term economic development of the United States.
Many key indicators of the US economy are not as "solid" as China's. Taking the added value of industries in the two countries as an example, the added value of China's primary industry and secondary industry last year were 5.06 times and 1.42 times that of the United States, respectively, of which the added value of manufacturing was 1.67 times that of the United States. Comparing several sets of important industrial data, we can understand why the Chinese economy is better and more confident than the United States. Last year, China's shipbuilding completion volume reached 42.32 million tons, while the United States only had 600,000 tons; China's automobile production was 30.16 million vehicles, while the United States had 10.6 million vehicles; China's industrial power generation above designated size was 8.9 trillion kWh, while the United States had 4.1 trillion kWh; China's steel production exceeded 1.36 billion tons, while the United States had 0.8 billion tons; China's cement production exceeded 2 billion tons, while the United States had 0.9 billion tons; China's total grain production was nearly 700 million tons, while the United States had 570 million tons. No matter from which angle we interpret China's GDP, we can feel that China's economy is resilient, has great potential, and is full of vitality. No matter how high the GDP data of the United States is, it is difficult to hide the dilemma of its low "gold content" and high "water injection" in the economy.
In the final analysis, GDP is only one item of economic data and cannot be used as the only reference system to measure a country's comprehensive strength, development achievements, and people's well-being. Using GDP comparison to criticize China cannot change the long-term positive development prospects of China's economy, weaken the strong momentum of China's high-quality development, or stop China's firm steps toward national rejuvenation. China's economy will continue to gather new development advantages and enhance new development momentum, providing inexhaustible impetus for global economic recovery and growth.