China GDP: why red-hot inflation could slow Beijing’s bid to unseat the US as world’s No 1 economy

The gap in gross domestic product between China and US will be magnified by high American inflation and a weaker yuan, says economist David Li Daokui

Nominal economic gulf might hit headlines in the Western world and China must be ‘mentally prepared’ to deal with the hype, says ex-central bank adviser

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The gap in GDP between China and the US will be magnified by high American inflation and a weaker yuan this year. Photo: AFP

Published: 12:30am, 19 Jul 2022Updated: 2:54am, 19 Jul 2022

China’s economy is likely to lag further behind the United States in dollar terms this year due to red-hot inflation, and the country should be “mentally prepared” for Western hype, a leading Chinese economist has said.

Although China’s annual growth rate is forecast to better that of the US, the US$5 trillion gap in economic output between the two countries might expand based on spot dollar calculations, according to David Li Daokui, a professor at Tsinghua University and a former adviser to China’s central bank.

American gross domestic product (GDP) will be magnified by a much higher inflation rate, coupled with a weaker Chinese yuan against the dollar following the Federal Reserve’s rate hikes, Li said. The nominal economic gap might hit headlines in the Western world.

“We need to be mentally prepared,” he said at a forum held by the Chongyang Institute for Financial Studies at Renmin University on Sunday.

China has enjoyed decades of high-speed growth and its rapid economic ascent is a source of pride for many in the country.

But an economic slowdown fuelled by trade disputes, geopolitical tensions and Beijing’s own policies – including its zero-Covid strategy and regulatory clampdowns on the property sector – could slow its path to surpassing the US as the world’s No 1 economy.

Some analysts have said that China’s worse-than-expected 0.4 per cent economic growth in the second quarter showed the country’s post-Covid recovery was less impressive than its geopolitical rival.

Former World Bank chief economist Justin Lin Yifu, who is now an adviser to the Chinese government, said in May that China had surpassed the US in terms of purchasing power parity in 2014, and the country’s economic output was bound to be twice that of the US one day.