The gap widens further! China's GDP fell to 59% of the United States, US media: China will never catch up with the United States

 

The gap widens further! China's GDP fell to 59% of the United States, US media: China will never catch up with the United States

In just a few decades, China's economic aggregate has been rapidly approaching that of the United States, once reaching 80% of the United States' GDP, and it seems that it is about to catch up with the United States. However, the economic gap between China and the United States has widened in the past two years. What is the reason behind this?

In the first quarter of 2024, both countries released the latest GDP data:

China's total GDP in the first quarter of this year was 29.62 trillion yuan, which is approximately 4.17 trillion U.S. dollars when converted into U.S. dollars.

The GDP of the United States during the same period was US$7 trillion, so China's GDP dropped to 59% of that of the United States.

From 77% in 2021 to 70% in 2022, to 65% in 2023, and falling below 60% in the first quarter of this year, the economic gap between China and the United States has widened significantly.

There is a widely circulated saying on the Internet called the “70% Curse.” It refers to the fact that when a country’s GDP reaches or approaches 70% of the United States, it will suffer continued suppression by the United States, leading to a continued economic decline.

This view even cites historical examples. For example, the total economic output of the Soviet Union and Japan was close to 70% of that of the United States. However, the Soviet Union eventually disintegrated, and Japan's economic bubble burst due to the "Plaza Accord" of the United States and fell into a long-term low growth state. .

Even the American media has expressed its opinion that under this trend, China may not be able to surpass the United States.

So, what are the reasons behind the widening GDP gap between China and the United States in the past two years?

If analyzed only from GDP figures, the impact of exchange rate is a key factor. It can be seen that before 2021, the gap between China and the United States continues to narrow, but starting from 2022, the gap between the two countries suddenly widens, mainly because the United States began to raise interest rates that year, causing the U.S. dollar index to rise, and the RMB began to depreciation.

The devaluation from 6.3 to 7.2 is the main reason for the widening gap between China and the United States. Calculated in RMB terms, China's GDP has been growing steadily without decreasing. However, due to the depreciation of the exchange rate, the gap appears even larger when converted into US dollars.

In 2023, China's total GDP is 126 trillion yuan, and the average exchange rate for the year is 7.04. Therefore, China's GDP is 17.89 trillion U.S. dollars, while the United States' GDP is 27.35 trillion U.S. dollars. China's GDP accounts for 65% of the United States.

If the RMB appreciates to 5:1 against the US dollar, China's GDP will immediately increase to US$25.2 trillion, accounting for 92% of that of the United States. This shows the huge impact of exchange rate movements, so the difference in purely numerical terms is not critical.

In fact, you can see the problem by looking at the growth rate of GDP. In the first quarter of this year, China's GDP grew by 5.3% year-on-year, while the U.S. GDP growth rate during the same period was 2.9%, which shows that China's economic actual growth rate exceeds that of the United States.
In fact, you can see the problem by looking at the growth rate of GDP. In the first quarter of this year, China's GDP grew by 5.3% year-on-year, while the U.S. GDP growth rate during the same period was 2.9%, which shows that China's economic actual growth rate exceeds that of the United States.

From the perspective of industrial development, China is in a critical period of industrial transformation and upgrading in recent years. The past model of relying on labor-intensive industries to drive economic growth is no longer sustainable, so industrial upgrading has become an inevitable choice.

Industrial upgrading means the transformation to high-end manufacturing and high-tech, high-profit industries, and is no longer just the "low-end factories" of the past. The United States hopes that China will continue to serve as a "low-end factory" and provide low-priced goods to the United States. This will not only pose a threat but also curb U.S. inflation.
Especially after China's 5G technology led the United States, the United States felt pressure and therefore found excuses to suppress and sanction Huawei. The United States' control and surveillance of communications technology are key means for maintaining its hegemony. Once these advantages are lost, the United States will find it difficult to control its allies.

China has achieved remarkable success in the transformation of new energy vehicles, and its export volume ranks first in the world. The United States is uneasy about this and hastily raised the argument that China's new energy industry is overabundant and plans to increase automobile import tariffs. The current strategy of the United States is mainly sanctions and suppression.

From trade wars to technology wars to exchange rate wars and financial wars, the United States’ strategies of suppression and sanctions have never stopped. However, China's industrial upgrading is also constantly advancing. The export of new energy vehicles, photovoltaics and lithium batteries continues to grow, promoting the rapid transformation and upgrading of the automobile industry.
The U.S. GDP has grown significantly in the past two years, mainly due to the return of funds brought about by U.S. dollar interest rate hikes and high inflation, but it has also intensified the expansion of U.S. debt. The backlash of high interest rates will continue until the U.S. cuts interest rates. Before the United States cuts interest rates, major economies around the world should be prepared to guard against various measures taken by the United States. Therefore, the game between major powers is not over yet. Until the United States starts to cut interest rates, we can say that this scene has come to an end for the time being.