The battle of economies: China vs. the U.S.

The battle of economies: China vs. the U.S.

Shockingly to some people, China's GDP turned out larger than the U.S.’ for the first time in history. Let’s discuss the potential implications.

According to the World Bank, China’s gross domestic product ranked No. 1 in 2017. China’s 2017 inflation-adjusted GDP measured by purchasing power reached $19.617 trillion, more significant than what the U.S achieved - $19.519 trillion.

What does that translate to? Perhaps a signal for a shift in economic power? Or could it be something different? Let’s see the facts.

The difference between prediction and reality

Market experts compared the Chinese economy to a giant force ready to overtake the U.S as the world's most powerful economy. In 2019, the British multinational company Standard Chartered predicted that the U.S will fall behind China in 2020 and could never regain its crown from an economic point of view. By 2030, the Asian Gross Domestic Product (GDP) will account for approx. one-third of the global growth, up from 28% in 2018 and 20% in 2010, concluded the bank.

But now, as we are approaching the end of 2020, people have changed their opinions. According to Capital Economics, the issue could have something to do with globalization:

"The process of reform and market liberalization has stalled in many large emerging markets, and some of the previous gains from opening up to international trade could be lost, as the current wave of globalization ends.", concludes the Capital Economics.

Comparing GDPs


However, if we analyze things from purchasing power parity exchange rates, China already thrones over global economies. The U.S. ranks second, and India occupies third place. But these numbers don’t reveal the whole picture.

There’s also another point of view worth considering. The calculation of GDP by purchasing power implies using the price of a common basket of goods and services as a barometer. This provides the battlegrounds for comparing the standard of living and buying power, but little else. If measured by the #U.S. dollar, China's #GDP was about $12 trillion in 2017 and $14 trillion in 2019. That was still below what the Americans accounted for.

In other words, China’s economy amassed about two-thirds of the size of the U.S economy last year.

Projections for economic growth


The International Monetary Fund estimated China's economy would grow by 1.2% this year, a significant slowdown from last year’s 6.1% growth. But the IMF forecasts the U.S economy would perform even worse, contracting by 5.9% mainly due to the coronavirus effects and the other internal issues the country’s experiencing.

Where the U.S. hold significant advantages

The U.S. holds advantages over its Chinese adversary in many statistics. For instance, the U.S economy's total output was $20.5 trillion in 2018, significantly larger than China's $13.6 trillion (source: World Bank).

According to a recent report, the U.S household wealth was $106 trillion in mid-2019 compared with an estimated $64 trillion for China.

China, expected to rule the retail market


China’s retail market could become the world’s largest in 2020, according to American research company eMarketer. The extreme competition in China’s e-commerce arena led to a nationwide implementation of digital innovations, helping China catch up with the rest of the world. On top of that, people used e-commerce platforms much more extensively during the pandemic.

The study published by eMarketer projects that China will produce $5.072 trillion in retail sales in 2020, marking a 4% decline from 2019's results. Compared with $4.894 trillion projected in the U.S, we're talking about a considerable difference. eMarketer previously predicted China's retail market would surpass the U.S. in 2021. Still, now the latest global developments have convinced the company to revise its conclusions.

Conclusion

The #International Monetary Fund and the #World Bank predict China will overtake the U.S. as the world's largest economy by 2024. Whether that will get to happen it remains to be seen. Until then, the U.S. largely remains the country to beat from an economic point of view, although it recently gave multiple signs of weakness.

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Sources: weforum.org, markets.bussinessinsider.com, theatlantic.com

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