China’s Share of Global GDP in Decline: A Post-China World
The Chinese economy’s decades-long run of tremendous growth has finally found its end. According to Ruchir Sharma, who wrote in the Financial Times, China’s share of world GDP is set to shrink by 1.4 percentage points over two years. This decline is the largest since the 1960s and 1970s when Mao Zedong oversaw a weak economy. Sharma states that ‘China’s rise as an economic superpower is reversing,’ marking a historic turn in the country’s economic trajectory.
A Notable Decline
In nominal dollar terms, which Sharma argues is the most accurate measure of an economy’s relative strength, China’s share of world GDP began slipping in 2022 due to strict zero-COVID measures. Despite expectations for a rebound, China’s share is expected to fall further in 2023, reaching 17%. This would result in a two-year drop of 1.4 percentage points, a slide comparable to the period when Mao Zedong presided over a weak economy in the 1960s and 1970s.
The Rapid Ascent and Reordering Prospects
China’s rapid increase in its share of the global economy has been unprecedented. In 1990, the country’s share was less than 2%, but by 2021, it had soared to 18.4%. However, with its current decline, China will no longer contribute to the growth of global GDP over the past two years, estimated at a total increase of $113 trillion.
Sharma predicts that China’s decline will significant affect the global economy. China’s increasing share of global GDP in recent decades came at the expense of Europe and Japan, whose shares remained relatively steady during the past two years. The gap left by China is being filled primarily by the US and other emerging nations. Specifically, India, Indonesia, Mexico, Brazil, and Poland are expected to account for half of the emerging-market gains, potentially signaling a power shift.
Main Factors Contributing to the Decline
China’s decline in global GDP is influenced by several key factors. These include growing government intervention in Chinese businesses, ongoing debt turmoil, slower productivity, a declining workforce, and the loss of foreign investors.
The Outlook and Chinese Government’s Perspective
Despite the decline, Beijing has maintained a 5% annual growth target and expects to meet it in the coming year. The International Monetary Fund also forecasts 5.4% growth for China in 2023. However, Sharma dismisses the use of real GDP growth as a metric, as it allows Chinese authorities to manipulate the numbers to fit their narrative. He argues that in nominal dollar terms, China’s GDP will decrease this year for the first time since 1994.
Chinese President Xi Jinping remains optimistic, hinting at a policy pivot during his recent meeting with US President Joe Biden. However, Sharma concludes that regardless of what actions China takes, its share in the global economy is likely to decline for the foreseeable future. He asserts that it is now a ‘post-China world.’
