Thought of the Day

China: The Biggest Economy

Approximately 38% larger than the USA


 
26 April 2024
 
China is the biggest economy in the world, estimated to be some 38% larger than the GDP of the USA in 2023, when calculated using Purchasing Power Parity data from the World Bank (with growth estimates from the IMF), and including estimates of the undervaluation of GDP due to an outdated base year, plus estimates of China's significant informal economy.

China growth v US growth
Over the past decade China has contributed 32% to global growth, compared with the USA's contribution of 9.7%. Compound Annual Growth over the last 3 years has been 3.2%, well over double the USA rate of 1.4%. Few predict China's growth differential in relation to the USA will disappear in the near future.

Some reasons why China's GDP is likely to continue growing faster in the medium term than that of the USA
China's GDP growth record is extraordinary; its education system is extraordinary (it graduates 1.4m engineers a year and over 20% of the world's bachelor degrees); it is far ahead of all countries in patent applications; it has a vast and highly skilled workforce focussed on the most tech intensive industries; and suggestions that China will get old before it gets rich due to the ending of its "demographic dividend" have been debunked by a recent paper pointing out that demographic changes have not been a critical driver of increases in GDP per Capita. There is more, not least that Asia as a whole is by far the biggest and fastest growing part of the world economy.

China’s Annual GDP Growth has Consistently Outperformed the United States
China: The Biggest Economy
China: The Biggest Economy

China's GDP per capita is likely to keep growing
South Korea, and Taiwan have achieved GDP per head of around 80% of the US level, starting from very close to poverty. If China can raise GDP per head to just 50%+ of US levels (hardly an impossible task given its record over the last 40 years), it will have a GDP twice that of the US. If China's GDP per capita gets anywhere near those achieved in South Korea, its economy will approach three times the size of the US.

What might alter this perspective
Any number of factors might derail China's growth, even in the short term, including war over Taiwan, mismanagement of the Chinese economy linked to its poor Governance rating, and further attempts by America to reduce trading links with China. But seismic events aside, given the giant size of its home market, (not to mention its role as workshop to the world), its attractiveness to companies like Apple, LMVH, and Volkswagen (all very dependent on Chinese markets) is unlikely to disappear.

NOTE: Chinese GDP data quality is rated C grade by World Economics, and so is usable with caution. Population data is rated A grade.
Chinese GDP and Population data are usable as guides to Chinese economic activity and per capita activity, respectively. The main current problems are that data showing unfavourable movements in economic activity has from time to time been suppressed or published later than expected, and some data is out of date or understated.

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