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The gap between China and the United States is widening! In half a year, China's GDP dropped to 64.5 percent of the US's. What happened?
Aug 25,2023
China and the United States, as the world's two major economic giants, its huge GDP gap has been the focus of attention of the international community. Looking back on the first half of 2023, the GDP performance of China and the United States is quite dramatic.
At this point in time, it should have been the stage of narrowing the gap between China and the United States, but it backfired. On the contrary, the gap between China and the United States has not narrowed, but widened. China's GDP has fallen to 64.5 percent of America's, making it a big focus in the economic arena.
GDP data
From a global perspective, China is currently the only country that can catch up with the US GDP. After all, the top three countries in the global GDP are: the United States, China, and Japan. In 2022, the GDP will reach US $25.46 trillion, US $18 trillion, and US $4.23 trillion respectively.
China's GDP has reached 70% of that of the United States. Both China and the United States have a GDP of more than US $10 trillion, while Japan ranks third, but its GDP is less than US $5 trillion, which is far behind by China and the United States.
In the next two to three years, China's GDP is expected to exceed 20 trillion US dollars, which is closer to the United States and will reach about 80% of the US GDP.
However, in the first half of 2023, the gap between China and the United States not only did not narrow, but also widened, China's GDP fell to 64.5 of the United States.
First of all, let's look at the economic data of the United States, due to the different methods of GDP statistics between China and the United States, the United States uses "year-on-year growth rate", while China uses year-on-year growth rate, so unified into year-on-year growth rate, easy to compare.
In the first quarter of this year, U.S. GDP grew by 2% year-on-year, and in the second quarter, U.S. GDP grew by 2.7 year-on-year. Especially in the second quarter, U.S. GDP growth exceeded market expectations and was even higher than in the first quarter. It can be seen that the U.S. economy in the first half of the year was not as bad as the media expected, but many indicators exceeded expectations.
As a result, U.S. GDP grew 2.3 percent in the first half of this year compared with the same period last year, while China's GDP grew 5.5 percent in the first half of this year, including a high growth of 6.3 percent in the second quarter.
Judging from the growth rate in the first half of the year, China is better than the United States, but why is the GDP gap widening after being converted into US dollars?
Reasons for the widening gap
First, one factor that has to be mentioned is the difference in inflation. There is a sharp contrast between China and the United States on the issue of inflation.
In the first half of this year, inflation in the United States continued to rise, leading to a significant increase in CPI growth, while in China, CPI growth was relatively low, showing a moderate inflation trend.
This difference in inflation directly affects the nominal growth rate of GDP. The high inflation rate in the United States has driven up the nominal GDP growth rate, while the low inflation rate in China has limited the nominal GDP growth rate, which is also an important reason for the widening GDP gap between China and the United States.
Second, the depreciation of China's RMB exchange rate in the first half of the year also had an impact on the GDP gap.
In the first half of this year, due to the Fed's continuous interest rate hikes, the US dollar strengthened, and the decline in China's exports, the slow recovery of consumption, and the downturn in real estate investment, the RMB exchange rate continued to fall.
As a result, China's GDP has shrunk significantly after being converted into dollars. This also laid the groundwork for the widening of the GDP gap between China and the United States.
As a result, in June, U.S. GDP grew by 7.1 percent, an increase of $880 billion, while Chinese GDP grew by 1.9 percent, a decrease of $162.4 billion. The economic gap between China and the United States widened again in June.
Impact on China and International
This event had a profound impact on China and the international community. First, China's GDP has fallen to 64.5 percent of that of the United States, making the domestic society begin to examine the economic structure and development path.
Although China still maintains strong economic growth, it also needs to be alert to the pressure brought by the inflation rate, actively respond to exchange rate fluctuations, and strive to maintain steady economic growth.
Secondly, the widening of this gap will also arouse the attention of the international community to the future trend of China's economy.
As the world's second largest economy, China's performance has a profound impact on the global economic structure. International investors and market participants will also pay close attention to China's policy adjustments and economic developments.
Although the widening of the GDP gap is temporarily disturbing, it is also a reminder that encourages us to continuously optimize the economic structure, innovate development models, and strive to narrow the gap with advanced international countries.
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