Author Topic: China Is Still Rising Don’t Underestimate the World’s Second-Biggest Economy  (Read 178 times)

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Offline libertybele

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China Is Still Rising
Don’t Underestimate the World’s Second-Biggest Economy

For over two decades, China’s phenomenal economic performance impressed and alarmed much of the world, including the United States, its top trading partner. But since 2019, China’s sluggish growth has led many observers to conclude that China has already peaked as an economic power. President Joe Biden said as much in his State of the Union address in March: “For years, I’ve heard many of my Republican and Democratic friends say that China is on the rise and America is falling behind. They’ve got it backwards.”

Those who doubt that China’s rise will continue point to the country’s weak household spending, its declining private investment, and its entrenched deflation. Sooner than overtake the United States, they argue, China would likely enter a long recession, perhaps even a lost decade.

But this dismissive view of the country underestimates the resilience of its economy. Yes, China faces several well documented headwinds, including a housing market slump, restrictions imposed by the United States on access to some advanced technologies, and a shrinking working-age population. But China overcame even greater challenges when it started on the path of economic reform in the late 1970s. While its growth has slowed in recent years, China is likely to expand at twice the rate of the United States in the years ahead.

Several misconceptions undergird the pessimism about China’s economic potential. Take the widely held misconception that the Chinese economy’s progress in converging with the size of the U.S. economy has stalled. It is true that from 2021 to 2023, China’s GDP fell from 76 percent of U.S. GDP to 67 percent. Yet it is also true that by 2023, China’s GDP was 20 percent bigger than it had been in 2019, the eve of the global pandemic, while the United States’ was only 8 percent bigger.

This apparent paradox can be explained by two factors. First, over the last few years, inflation has been lower in China than it has been in the United States. Last year, China’s nominal GDP grew by 4.6 percent, less than the 5.2 percent that its GDP grew in real terms. In contrast, because of high inflation, U.S. nominal GDP in 2023 grew by 6.3 percent, while real GDP grew by only 2.5 percent.

Moreover, the U.S. Federal Reserve has raised interest rates by over five percentage points since March 2022, from 0.25 percent to 5.5 percent, making dollar-denominated assets more attractive to global investors and boosting the value of the dollar relative to alternative currencies. Meanwhile, China’s central bank cut its base interest rate from 3.70 percent to 3.45 percent. The growing gap between Chinese and U.S. interest rates reversed what had been a large inflow of foreign capital into China, ultimately depressing the value of the renminbi vis-à-vis the dollar by ten percent. Converting a smaller nominal GDP to dollars at a weakened exchange rate results in a decline in the value of China’s GDP when measured in dollars relative to U.S. GDP..........
Romans 12:16-21

Live in harmony with one another; do not be haughty, but associate with the lowly, do not claim to be wiser than you are.  Do not repay anyone evil for evil, but take thought for what is noble in the sight of all.  If it is possible, so far as it depends on you, live peaceably with all…do not be overcome by evil, but overcome evil with good.