introduction
In the past two years alone, China's GDP has plummeted to 65 percent of that of the United States.
All of a sudden, major international institutions have heard voices of decline, saying that China's rise has been blocked by the United States, saying that we will never be able to catch up with the United States.
So, what is behind the downward trend of China's GDP share with the United States? Is it the "70% curse" that manifests itself, or is the Fed's violent interest rate hike reversed the situation?
Is the 70% spell really fulfilled?
Since surpassing Britain in 1894, the United States has been the world's largest economy, which is related to the United States' constant suppression of the world's second place.
Historically, both the Soviet Union and Japan have stormed the top of the world, but without exception, they have all failed.
In the 80s of the last century, when Japan's GDP accounted for 70.4% of the United States, it was beaten back to the prototype by the other side's Plaza Agreement.
The United States first appreciated the Japanese currency to suppress Japan's export trade, and then signed a semiconductor agreement to restrict Japanese science and technology, and sent troops to build bases, making Japan a military vassal and semi-colony of the United States.
As a result, Japan cannot even maintain its fourth position in the world, and its total economic output is only one-sixth of that of the United States, and it is only a matter of time before it is overtaken by India.
Not to mention the Soviet Union, which fought with the United States for half a century, and finally died in the arms race, which became a historical term.
Based on the encounter between Japan and the Soviet Union, the political circles came up with such a mysterious concept called the "70% curse".
This means that when a country's total economic output accounts for 70% of the United States, it will passively turn from prosperity to decline, and the gap with the United States will become wider and wider, becoming the tears of the times.
Just because the United States does not allow any country to shake its position as the world's hegemon, it has set a 70 percent "threshold" to judge whether a country will pose a threat to it.
Anyone who approaches this threshold will be brutally repressed by the United States, including but not limited to political subversion, technological blockades, and economic sanctions. Japan and the Soviet Union suffered greatly.
Now, the pressure is on China's side. In 2017, China's share of GDP with the United States reached 66%.
This is as good as that moment. When the United States saw this, how could this be done? So it started a trade war and a ban on Huawei.
From Trump to Biden, the United States' suppression of China has gone through two presidents. After the epidemic, their measures seem to be effective.
In 2021, the GDP gap between China and the United States narrowed to its lowest level ever. However, just as China's share of GDP in the United States was approaching 77%, the situation reversed.
In the past year alone, that share has plummeted back to 70 percent. Last year, the GDP gap between China and the United States widened again, and China's share of GDP with the United States fell back to the level of 2017.
At first glance, the previous six years of catching up seemed to have all been in vain.
Some people are deeply concerned about this. It was also in this year that a well-known economic journal published a masterpiece called "China's Peak".
The so-called "70% curse" is touted throughout, arguing that China has exhausted its economic growth potential, and its economic level has reached a dome and can no longer compete with the United States.
As soon as this remark came out, people's worries were even worsened.
The real reason for the widening GDP gap between China and the United States is the appreciation of the dollar and inflation
Is the "70% curse" really manifested? Actually, it's not, because after a deep analysis, it was discovered.
In the past two years, there are several special reasons behind the widening GDP gap between China and the United States, which makes the GDP figures of China and the United States unable to accurately reflect the actual situation of the two countries.
The widening of the GDP gap between China and the United States is not that China is falling behind, but that the United States is mixed with water.
First and foremost is the issue of exchange rates. For example, China's total GDP last year was 126.06 trillion yuan, an increase of 5.20% year-on-year.
This growth rate has clearly surpassed that of many developed countries in the same period, or at least it shows that China has not slowed down or stood still.
In contrast, the United States grew GDP by just 2 to 3 percent last year, which is lower than usual. It stands to reason that the gap between China and the United States is unlikely to widen.
But the strange thing is that after all of the above numbers are converted into US dollars.
It will be found that China's GDP has been seriously reduced, leaving only about 60 percent of the United States, and the growth rate is not as good as before, and it seems that it cannot be supported.
The reason why this is the case lies in the exchange rate.
As we all know, before comparing the GDP of various countries with the United States, it needs to be converted into US dollars in order to see the level and proportion of each other.
The problem is that the exchange rate is not fixed. Once there are sharp fluctuations, it is difficult to reflect the true level between countries.
Especially when the dollar appreciates and the yuan depreciates, the dollar-denominated GDP comparison becomes the home of the United States, and in this case, it is almost difficult for China to surpass the United States.
Unfortunately, these two years have been the most volatile period for the US dollar exchange rate.
The cause of the incident has to start from two years ago. In 2022, the United States suddenly announced that it would raise interest rates, and then the Federal Reserve started raising interest rates violently.
The Federal Reserve is the central bank of the United States, and it is well known that when a country's central bank announces an increase in interest rates, the return on savings in the corresponding currency in that country will also increase, which will lead to more money flowing from the consumer sector to the savings market.
Because the interest rate is higher, people are more willing to deposit money in the bank. This flow of money reduces the circulation of money in the market, which pushes up the price of the dollar.
In addition, the U.S. dollar is not only legal tender in the United States, but also the settlement currency for global trade and international investment.
This means that the Fed's interest rate hike will also attract global dollar capital to flow back to the United States, further stimulating the demand for the dollar, pushing up the dollar exchange rate while causing other non-dollar currencies to depreciate.
In addition, high prices are also a major driver of the soaring GDP in the United States.
Before explaining why, we need to understand what GDP is. The so-called GDP refers to the sum of the final results of all production activities in a country in a certain unit of time.
This value is usually measured in terms of the value of goods and services, which means that if the total number of goods produced remains the same, prices will rise year-on-year, and GDP will also rise.
Since the beginning of 2022, the United States has been mired in a high level of inflation not seen in more than 40 years, with inflation reaching more than 7% at one point, and the prices of key commodities rising at a rate of 3.5 percentage points month by month.
As prices rise and consumer spending increases, U.S. GDP has been pushed to a higher level, and, unlike China, the U.S. GDP statistics are more focused on consumption.
In 2022, for example, private consumption spending in the United States accounted for 68.17% of total GDP. In addition, when the United States calculates GDP, it will also take into account the price increase caused by inflation, resulting in an inflated value.
This is obviously unscientific, therefore, the National Bureau of Statistics emphasizes in the national accounts report that GDP should be calculated at constant prices, excluding inflation.
China's GDP methodology focuses on production, and the advantage of this approach is that it ensures that every dollar counted corresponds to actual goods and services.
The disadvantage is that the final statistics are not as good as those in the United States, which encourages the crooked heresy of the "70% curse."
Many people like to compare the Soviet Union and Japan in the past with China today.
Thinking that Japan and the Soviet Union have lost, China will definitely not be able to do it, and it is called "taking history as a mirror." However, this analogy is too presumptuous.
Today's China, with its unattainable strategic depth and sovereign integrity in Japan, and at the same time the economic advantages that the Soviet Union lacked, is on the road to unstoppable rise.
The United States has been unable to use the methods it used to deal with the Soviet Union and Japan against China, and China's rise has not been interrupted. In fact, China has become one of the key engines of global economic recovery.
China's GDP has been growing at a high rate for many years, although some indicators have fluctuated due to short-term factors.
However, the fundamentals of China's economic stability and long-term improvement have not changed, and the Chinese government is also taking a series of measures to promote economic development, including strengthening innovation-driven, optimizing the economic structure, and deepening reform and opening up.
China's rise is a long-term process that requires various challenges and opportunities, and in this process, the Chinese government and enterprises have been actively responding to various challenges and seizing development opportunities.
After understanding the reasons behind the short-term widening of the GDP gap between China and the United States, we find that the long-term narrowing of the GDP gap between China and the United States is a high probability event.
First, there are data showing that inflation in the US has begun to fall and is expected to gradually return to normal levels this year.
This means that the consumer spending of the US society due to rising prices will be reduced, and the effect of inflation and rising prices on GDP growth will continue to weaken.
Second, the Fed's interest rate hikes are not perpetual, but a cyclical process. International institutions generally expect that this year, the Federal Reserve will stop raising interest rates and enter the process of cutting interest rates.
At that time, the exchange rate of the dollar against the yuan will fall, and the GDP denominated in dollars will be more favorable to China.
epilogue
In short, China's GDP fell to 65% or 77% in the United States, which is only a change in numbers and does not reflect the reality of China's economic development.
In fact, China's economy has maintained steady growth in recent years and has made remarkable progress in some areas.
Therefore, we should take an objective view of the development trend and achievements of China's economy. After all, GDP is not the only reference indicator.
Resources:
1. Han Zhaozhou.A Comparative Analysis of the Economic Strength and Potential of China and the United States[J]Journal of Quantitative and Technical Economics, 2014.07