China vs US GDP Growth: Deep Truth About Both Economies

The United States and China have always competed to become number one. There are several reasons behind this, as they are the two largest economies globally in nominal and PPP methods. United Nations is top in nominal GDP, while China is top in the PPP method. Both countries share 42.73% and 34.23% of the world's GDP in nominal and PPP terms. If you look at the data, the GDP of both these countries is much higher than the third rank country, Japan, in nominal GDP and India in PPP by a vast margin. And this is why it is China vs US GDP growth.

Key Highlights

1. The United States has the largest nominal GDP in the world, and China has the second-largest nominal GDP.
2. China has the largest GDP regarding the PPP method, while America is the second largest.
3. By the end of the third quarter in 2023, the Chinese economy has gone nominally by 3.5%, and the US economy has gone by 6.4%.

Does China have a higher GDP than the US?

The United States economy is the largest economy in the world when measured by nominal GDP. The biggest contributors to its GDP are its economy services sectors like finance, real estate, insurance, professional and business services, and healthcare. The United States is an open economy that facilitates flexible business investment and foreign direct investment in the country. The bright side for the US economy is that it is a dominant geopolitical power that can maintain a large external national debt.

China is the world's second-largest nominal GDP. China has opened its economy over the past four decades, which has led to economic development and increased the living standards of Chinese citizens. China has encouraged domestic manufacturing, which has made China the world's number one exporter. But the downside is China's rapidly aging population and severe environmental degradation has resulted in slow.

Who is richer, China or the US?

As of 2023, the GDP per capita of the United States is $80,412. The United States is the world's richest country, with a GDP of $26,949 billion (nominal). On the other hand, China's nominal GDP is $17,700, while its GDP per capita is $12,541. Unsurprisingly, the United States is richer than China in terms of nominal GDP.

Why China will never overtake the US economy?

Many analysts predicted that China will outpace the United States this year in terms of economic growth. But these analyses are turning unfavorable as China is struggling with a mere 0.8% growth in the second quarter of 2023 while the US has 1.2% growth. This is where doubt has arisen as to whether China will surpass the US economy or not. The analyst at Goldman Sachs estimated that this would happen in 2035; however, others like Desmond Lachman have suggested that it might take at least 20 years. They are even sure that the double-digit growth in China seems over, and there are concerns about its economic weaknesses. If you look at the GDP per capita of China, it is smaller than that of the US. 

The reason behind China's economic struggles is the impact of the Federal Reserve to keep raising its interest rate. Investors have started withdrawing their investments from Chinese markets, which has even widened the gap between the United States and Chinese bond yields. Other issues like deflation, record youth unemployment, struggle for the property sector, loan bank landing, and decline in global trade are a few indicators that say China's economy is going through a challenging phase, and it might be more challenging for China to outpace America.

Is the US Economy Growing Faster than China?

By the end of the third quarter of 2023, the Chinese economy had grown nominally by 3.5%, and the United States economy had increased by 6.4%. However, nominal growth is overlooked by a few factors, like higher inflation, which means higher little growth. Many analysts have predicted that the Chinese economy would outperform the US economy, but this has yet to happen, and the gap is widening. On the other side, the reality is it may not occur because the nominal growth of a country mainly depends on three factors: hours worked, productivity per hour worked, and the GDP price.

1. The number of hours worked: It happens when young people enter the labour market versus how many older people retire and are adjusted mainly due to labour force immigration. It has a negative contribution in China and a positive contribution in the USA as the demographics and net immigration are generating a difference in the variation of hours worked in favor of the US to approximately 0.5%.

2. Productivity per hour worked: Productivity depends on the growth of the capital stocks and the ability to produce more with existing means. If you look at the productivity growth, it has benefited China more than the United States. However, it is also true that it is easy to grow productivity from poor performance levels. In the case of China, it is now an over-invested economy, which will lead to lower future capital stock growth. Also, the public sector is increasingly displacing the private sector in the country.

3. GDP price deflator: The United States is now facing declining but structural inflation, while on the other hand, China is facing deflationary pressure. The United States stands at 3.1% inflation, while China is experiencing 0.5% price falls. 

These three factors explain why the US economy is growing more than the Chinese.

Bottom Line

There are disputes over which of the two undisputed superpowers is the biggest. It means when it is between China vs US GDP growth, which has topped the line. Definitely, there are many indicators that show China is on the rim to defeat the US in the near term. However, when we look deeply into this matter, China may take more than the predicted time to defeat America and become the number one country in the world in terms of nominal GDP. 

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