economy

China’s GDP is now $14.4 trillion. Within ten years …

China slowed down a bit, thanks to trade war and tariffs, but didn’t suffer a lot. The mainstream media gave it a spin as “China’s economy grows at the slowest pace in 29 years!” However, the slowdown in China’s growth is natural at this stage of its development. Nothing can grow at 15% forever. What is not mentioned by the China-haters is that China grew much faster than the US economy and left other major economies like EU and Japan in the dust.

Here are the numbers for GDP growth in 2019 — China: 6.1%, USA: 2.2%, EU: 1.4% and Japan: 0.7%.

2019 GDP growth

Note that, the official GDP growth are always inflation-adjusted. This is a strange norm that distorts reality. We don’t do this to other stats like stock market or wages. Thus, in real life, China’s GDP actually grew 10% … from Ұ90 trillion to Ұ99 trillion.

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Thus, last year, China’s GDP grew by Ұ9 trillion… which translates to $1.3 trillion. For comparison, the US economy grew by $850 billion. See the difference? China’s economy grew by $450 billion more than the US. This is how China catches up to the US. Every year from now on, China will reduce the gap with the US by $500 or more.

Thus, in 2019, China’s GDP reached $14.4 trillion. And that doesn’t include Hong Kong and Macau. Include them, and China’s GDP really was $14.8 trillion in 2019!

World Beyond the US

How did China achieve this growth? How come the trade war and tariffs didn’t wreck the Chinese economy? Two answers:

One, the significance of American economy is shrinking. In 2019, the US became the third trading partner for China! The top two were EU and ASEAN (a group of 10 countries in Asia). The Belt and Road countries also increased their trade with China. All in all, China’s total foreign (international) trade in 2019 was record $4.6 trillion — $2.5 trillion in exports and $2.1 trillion in imports.

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Two, China’s economy is no longer dominated by manufacturing. Services sector — “tertiary industry” — is now 54% of the economy; and manufacturing is only 40%. Since services depend mostly on domestic consumption, trade war doesn’t have much impact.

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Future

If you look at the relative size of China to the US over the last 30 years, you can see how China is catching up:

0 Growth Relative -- big

With 4x as many people — who also work very hard —  and a government that surprisingly plans and coordinates the economy very well, it should be no surprise that China will surpass the US by 2030 in nominal GDP. (Don’t forget that China has been #1 in terms of PPP GDP since 2014).

Of course, the trajectory is based on the assumption there won’t be many major financial crisis or hot wars in the coming decade, which are all quite possible.