From boom to gloom: China’s economic momentum is waning

Forecasts for China’s economic growth for 2023 and 2024 have been lowered on Wall Street over the past few weeks. The world’s second largest economy now risks missing Beijing’s growth target for the second year in a row, and may expand at less than 5% for three years in a row. Something no one has heard of since Mao Zedong’s death in 1976.

A growth slowdown would certainly have longer-lasting geopolitical implications. The odds are high against President Xi Jinping, who last year pledged to make China a “medium-growth country” by 2035. This is also the time when China can dethrone the United States to become the number one economy in the world, if things are right. . However, such a possibility seems increasingly remote given current trajectories.

China’s strong growth and subsequent currency appreciation meant that the country’s output, measured in dollars, grew much faster than the US for more than two decades. The country’s GDP was about $1.2 trillion at the turn of the century, one-eighth less than that of the United States. Its share of US GDP rose to about 70% in 2020, and then exceeds 72% in 2021. This was similar to what happened in Japan, whose dollar-denominated production was nearly 73% of US levels in 1995, before Embarking on a downtrend since then.

Last year was a watershed moment, as China’s relative economic strength vis-à-vis the US declined after the second quarter, when a two-month lockdown in Shanghai wreaked havoc on sentiment and dampened growth momentum.. The country’s gross domestic product increased by $1.3 trillion in 2022, compared to an increase of $2.1 trillion in the United States, according to data compiled by Bloomberg. In the first half of 2023, China’s GDP contracted in dollar terms – with the yuan losing nearly 5% against the dollar – while the US economy continued to function, “opening an even larger hole in the global economic race,” as my colleague Gerrard writes. debebo. Now Chinese output as a share of US output is approaching 68%, and is on track for a second straight year of decline.

At the party congress in October, President Xi set China’s goal of becoming a “medium-growth country” by 2035, which implies doubling the size of its economy and per capita GDP compared to 2020 levels, and requires an average annual growth rate of about 4.7%. . The latest Bloomberg survey of economists saw Chinese output expanding 5.1% this year, before easing to 4.5% in 2024 and 2025. Given the 3% expansion last year, the four-year average between 2022 and 2025 would be less than 4.3%. This number is sure to fall if policymakers refrain from delivering significant stimulus and growth momentum continues to deteriorate.

Two years ago, my colleagues Eric Chu and Tom Orlick at Bloomberg Economics analyzed several scenarios and came up with this. China will need growth above 5%, as well as at least a steady pace of reforms, and it will also need to avoid complete decoupling in order to displace the US economically in the next decade.. Events since then have made the base case look optimistic, and the negative scenario closer to reality. Beijing may choose to bypass the current growth impasse and refrain from any “big bang” measures at the cost of never rising to the top of global economic competition.

By George Lee, Bloomberg Markets Live Correspondent and Strategist via

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