China’s Economy Struggles to Surpass the US: A Closer Look
In recent years, there has been much speculation about whether China will surpass the United States economically. Chinese leader Xi Jinping has set the ambitious goal of overtaking the US as the world’s largest economy by 2049, but experts are now questioning whether this is achievable. A combination of economic and political factors, along with Beijing’s diminishing diplomatic power, have cast doubt on China’s ability to catch up. Meanwhile, the US economy remains robust and continues to demonstrate its strengths.
One of the key challenges facing China’s economy is its failure to fully recover from the COVID-19 pandemic. Unlike other countries, China kept its lockdown measures in place for an extended period, causing many companies and countries to relocate their supply chains and manufacturing away from China. By the time China reopened, new systems were already established, with countries like Mexico and India reaping the benefits. The manufacturing sector that remained in China has suffered from the global economic slowdown, and Beijing is now attempting to stimulate economic growth with reduced manufacturing and exports.
In addition to declining exports, China is also grappling with mounting debt. The debt-to-GDP ratio has reached a staggering 286.1 percent, and local governments are struggling with crisis levels of debt. The real estate sector, which accounts for 20 percent of the nation’s economy, is in a downward spiral. Real estate giants like China Evergrande and Zhongzhi have declared bankruptcy, raising concerns about the stability of the entire financial system. These factors have led fund managers to describe Chinese markets as “uninvertible,” and the benchmark MSCI China stock index has lost nearly $2 trillion in value since its peak in 2021.
China’s aggressive foreign policy in the South China Sea and its disputes with various countries, including the United States, Taiwan, the Philippines, Japan, and Vietnam, have resulted in Beijing becoming increasingly isolated. With fewer friends and diplomatic allies, investment and trade are also suffering. Countries like South Korea, the European Union members, Australia, and Japan are gradually reducing their reliance on China due to constant threats and disputes. This isolation has also led to the departure of foreign brands from China, as companies like Hollywood, U.S. car manufacturers, and Apple no longer experience the same returns as before. Many of these companies are shifting their focus to emerging economies like India or returning to the United States or Mexico.
China’s ability to achieve its economic goals relied heavily on the Belt and Road Initiative (BRI), which aimed to reshape the international rules-based order. However, the BRI has not progressed as planned, and many countries involved are facing financial distress. Several nations have even canceled their involvement in BRI projects, leaving Chinese lenders with significant amounts of uncollectible debts. Internally, China is also facing challenges such as deflation, record youth unemployment, and plummeting birth rates. The shrinking foreign direct investment and waning interest from foreign companies to establish operations in China further hinder innovation and technological advancements.
On the other hand, the United States continues to demonstrate its economic strength. The country is home to 75 of the world’s most innovative companies, and it leads in research and development spending both in real-dollar terms and as a percentage of GDP. In contrast, China ranks 14th in R&D expenditure. Despite political divisions and emerging social issues, the US economy has remained strong compared to other Western economies during and after the pandemic. US institutions and courts also protect property rights and intellectual property, attracting more foreign direct investment compared to China.
Although China’s GDP growth rate may be higher than that of the United States, the US economy is larger overall. Even a smaller percentage of growth in the US represents a greater amount in real dollars. For China to catch up, it must address its internal economic challenges and external diplomatic issues. However, there seems to be a lack of interest from Chinese leader Xi Jinping in tackling these problems.
In conclusion, it is no longer certain that China will surpass the United States economically. China’s economic and political challenges, along with its diminishing diplomatic power, have hindered its progress. Meanwhile, the US economy remains strong and continues to demonstrate its strengths in innovation, research and development, and attracting foreign direct investment. As the world watches, it remains to be seen whether China can overcome these obstacles and fulfill its goal of becoming the world’s largest economy.
