China GDP: coronavirus helped Chinese economy trim US$1 trillion from gap with US in 2020

After recovering quickly from the pandemic, China gained almost US$1 trillion in ground on the United States economy in 2020
Some analysts now forecast China will overtake the US as the world’s biggest economy by 2028, ahead of Beijing’s official predictions

China economy

Sidney Leng

Published: 8:00pm, 29 Jan 2021

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The gap between the size of the US and Chinese economies shrank by close to US$1 trillion in 2020 after the US posted its worst economic growth figure since the end of World War II.

The US economy – the world’s largest – contracted by 3.5 per cent last year from a year earlier, after being upended by the coronavirus pandemic, according to data from the US Department of Commerce published on Thursday. Last year’s economic performance was the worst since 1946, when the economy shrank by 11.6 per cent.

This comes after China posted an annual growth figure of 2.3 per cent for 2020, as its economy rebounded strongly from the pandemic largely due to higher state investments and exports. China is expected to be the only major economy in the world to have officially grown last year.

The current-dollar value gap in gross domestic product (GDP) between the world’s two largest economies was reduced by about US$1 trillion to about US$6 trillion, according to calculations by the South China Morning Post based on official data from 2020 and 2019.

“The deeper the hole is that you go into as an economy during the pandemic, the more medium and long term pain there is,” said Louis Kuijs, head of Asia from Oxford Economics. “Therefore when I look at our forecasts and how they have changed, I see that we now expect China to overtake the US a bit faster than we did a year ago.”

The divergent growth rates last year led some economists to project that China could surpass the US as the world’s largest economy as early as 2028, ahead of the Chinese government’s own projections of 2032.

In a report published at the end of last year, the British-based Centre for Economics and Business Research (CEBR) said China would continue to grow faster than Europe and the US in the coming years.

The CEBR estimated that the US economy would grow by about 1.9 per cent every year from 2022 to 2024 and then slow to 1.6 per cent growth in the years after that. By contrast, the Chinese economy could expand by 5.7 per cent annually until 2025, and 4.5 per cent every year in each of the next five years to 2030.

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China’s economy accelerated at end of 2020, but virus-hit annual growth lowest in 45 years

The World Bank said that if calculated using purchasing power parity, a measurement of the ability to purchase similar items in different currencies, China’s GDP surpassed the US in 2017.

But that metric has limitations. Instead, on a per capita basis, China is still the world’s largest developing country, wrote Xu Xianchun, an economist at Tsinghua University, in an article published on the National Bureau of Statistics’ website last May.

The US economy had a roller coaster final year of the Trump presidency, in which the government was criticised for failing to contain the spread of the pandemic.

After several states imposed lockdown measures in the second quarter, the US economy contracted by more than 32 per cent, annualised. US growth soared 33 per cent in the third quarter after economic activities resumed, again in annualised figures. Then, as coronavirus cases rose in the last quarter, the growth slowed to 4 per cent, according to US government data.

The full-year contraction in the US economy was mainly due to declining personal consumption, private investment, and state government spending, partly offset by higher federal government stimulus for small businesses and households. Last year, US exports fell by 13 per cent while imports dropped 9 per cent, resulting in an expansion of the trade deficit by US$8.2 billion from 2019.

This article appeared in the South China Morning Post print edition as: gap with America shrinks by US$1tr