China’s economy gains momentum, but experts say it’ll never surpass the U.S.
China’s economic growth exceeded forecasts in the third quarter, but experts warn that the momentum isn’t going to last.
Last week, the country's National Bureau of Statistics reported that China’s GDP grew 4.9% in the third quarter from a year earlier, exceeding estimates of 4.4%. Industrial production and retail sales also grew faster than expected.
Economists attributed the growth to several policy measures enacted by the central government to boost consumption in the auto, real estate, and services sectors.
“It seems that all of that stimulus is finally beginning to take effect, wit h a broad beat from growth, retail sales, industrial production, and unemployment,” Matt Simpson, senior market analyst at City Index, told Reuters.
But after fumbling its post-pandemic recovery, China faces too many economic challenges to keep the momentum alive.
“The Chinese economy has been beset by a combination of short-term problems as well as longer-term structural challenges, all of which seem to be coming to a head at the same time,” said Cornell University professor Eswar Prasad.
This reality has many experts questioning the decades-old narrative that China will eventually overtake the U.S. as the world’s largest economy. Now they have data to back it up.
Revising down China’s economic miracle
A recent forecast from Bloomberg Economics threw cold water on the idea that China’s ascent will make it the world’s top economy in the foreseeable future.
To be sure, Bloomberg’s model has China overtaking the U.S. in the mid-2040s, but only by “a small margin” before “falling back behind.”
That’s a far cry from pre-pandemic estimates calling for China to take the top spot by the early 2030s.
“China is down-shifting onto a slower growth path sooner than we expected,” the Bloomberg economists said in a research note. “The post-Covid rebound has run out of steam, reflecting a deepening property slump and fading confidence in Beijing’s management of the economy.
"Weak confidence risks becoming entrenched—resulting in an enduring drag on growth potential,” they added.
The economists forecast China’s GDP growth to slow to 3.5% in 2030 before falling to 1% by 2050. That’s much lower than previous estimates of 4.3% and 1.6%, respectively.
The U.S., meanwhile, is expected to maintain a 1.5% growth rate by 2050.
Americans could feel the impact, eventually
China’s rising economic star over the decades was driven by its factory production, domestic policy reforms, and the formation of rural enterprises and private businesses. It was the linchpin of globalization that helped fuel the global economy.
Conversely, a slowing China is expected to have a ripple effect on global growth, potentially dragging down commodity prices due to lower consumption.
This means lower Chinese demand for goods and services from other countries, including the U.S., which exports nearly $150 billion worth of goods to China annually. According to the U.S.-China Business Council, exports to China support more than 1 million American jobs.
“Less Chinese imports means less income for other countries,” including the U.S., according to Houze Song, a fellow at the MacroPolo think tank.
The U.S. may also lose out on exports if China’s slowdown impacts its national currency, the renminbi (RMB).
“A depreciation of RMB means appreciation of other currencies, for example, the U.S. dollar. If U.S. dollars become more expensive relative to RMB, this means that U.S. goods are becoming less competitive,” Song said.
That could also have knock-on effects on American workers in export-oriented industries.