Chart Shows China's Economy Losing Ground Against US

Though China announced with fanfare last week it had exceeded its goal of 5 percent economic growth last year, an economist has pointed out that in current dollar terms, its economy grew by the slimmest margin in decades.

Because it accounts for inflation, nominal GDP is considered a more accurate measure of the health of an economy than the real GDP, or raw, unadjusted economic output, cited by China.

China's post-pandemic recovery has been hampered by a property market slump, falling foreign investment, lackluster consumer confidence, high youth unemployment and a global appetite for exports.

Accounting for inflation, China's nominal GDP growth was not 5.2 percent but 4.6, "the lowest in almost 30 years," economist George Magnus, an associate at the University of Oxford China Centre, told Newsweek Tuesday.

In nominal terms, China's GDP fell to $17.5 trillion while its share of the global total slipped a point to 17 percent, Magnus said on X (formerly Twitter) Sunday, citing data from the International Monetary Fund.

Newsweek reached out to the Chinese Foreign Ministry with a written request for comment.

Meanwhile, the United States' global share was about 25 percent in 2022 and rose by 6 percent to approximately $27 trillion last year.

On the other hand, stronger nominal GDP growth over the real growth rate in the U.S. suggested possible high inflation and excess demand, Guonan Ma, a senior fellow at the Asia Society Policy Institute's Center for China Analysis, told Newsweek.

The U.S.'s nominal growth was estimated to be 6.2 percent at the end of the third quarter last year, while the IMF said its real GDP growth was just over 2 percent.

"The big question is how sustainable this might be," said Ma, who suspects the U.S.'s strong growth in nominal terms is partially driven by its "sizable and widening government fiscal deficit."

"China's reported 5.2 percent real GDP growth in 2023 looks good, but it's both an unreliable estimate of what happened and an exercise in flattery," Magnus said.

He said it indicates a drop in prices across the spectrum, with the "so far" mild deflation being more pronounced in the second half of the year.

Deflation is far more threatening than the fluctuations typically seen in consumer prices, Magnus pointed out.

The reduced supply of money raises its value, including the value of debts—a bugbear for China in light of its burst real estate bubble that saw property giant Evergrande default on over $100 billion in offshore debt in 2021.

The deflation is also a sign of weaker demand that fell short of policymakers' expectations after the end to China's strict anti-pandemic restrictions last January.

While inflation hits middle and lower-income shoppers in the pocketbook, Magnus pointed out that deflation "crimps businesses and households and threatens the financial system."

Specifically, it may "push up real interest rates, adding pressure on cash-strapped local governments, struggling property developers, and cautious prospective home buyers," Guonan Ma, senior fellow for the Asia Society Policy Institute's Center for China Analysis, wrote for the center's monthly update last week.

Although China's growth prospects appear sunnier going by the still-impressive (real GDP) 5.2 percent showing that Chinese Premier Li Qiang touted at Davos last week, even this figure is trending downward.

Over the next few years, Beijing should increase its focus on rekindling domestic demand, Ma said.

In the midterm, though, the resilience of the world's two economic behemoths will come down to respective accumulation factors like capital, labor and technology, as well as their relative productivity.

Data from top financial institutions like the World Bank show the gap between the two largest economies widened further last year. China's economy was just two-thirds the size of its geopolitical rival, down from 70 percent in 2022 and 76 percent in 2021.

Update: 1/25/24, 2:30 a.m. ET: This article has been updated with comment from Guonan Ma.