New graph reveals that China might overtake the US because the world's largest economic system sooner than anticipated
The workers stand in the port of Qingdao, Shandong province, China on June 10, 2019.
BEIJING – China will overtake the US as the world's largest economy a few years earlier than expected due to the coronavirus pandemic, analysts said.
The US reported last week that its gross domestic product fell 2.3% to $ 20.93 trillion in 2020, based on a preliminary government estimate.
In contrast, China said its GDP rose 2.3% to 101.6 trillion yuan last year. That's roughly $ 14.7 trillion, based on an average exchange rate of 6.9 yuan per dollar, according to data from Wind Information.
This puts China's economy just $ 6.2 trillion behind the US, compared to $ 7.1 trillion in 2019.
"This (different growth rates) is in line with our view that the pandemic is a much bigger blow to the US economy than China's economy," Nomura's Rob Subbaraman said in an email on Friday. "We believe that the size of the Chinese economy in USD terms will overtake the US in 2028 based on reasonable projections."
If the Chinese currency continues to rise to around 6 yuan per US dollar, China could outperform the US two years earlier than expected – in 2026, Subbaraman said.
The yuan began to appreciate against the US dollar in the past six months to levels that it had not seen in more than two years.
Covid hits the US hardest
Covid-19 first appeared in the Chinese city of Wuhan in late 2019.
To control the virus, authorities shut down more than half of China's economy in February 2020, and urban unemployment hit a record high of 6.2% that month. GDP declined by 6.8% in the first quarter.
The outbreak stalled domestically after a few weeks, and the economy returned to growth in the second quarter.
Meanwhile, the coronavirus spread widely overseas and became a global pandemic that hit the US worst. The United States has the highest number of deaths and infections with Covid-19 in the world.
The US unemployment rate rose to over 14% in April and stayed above 10% for three more months.
"The latest GDP data shows that China's recovery experienced strong momentum towards the end of 2020 due to its ability to contain the pandemic," said Tai Hui, chief strategist for Asia at J.P. Morgan Asset Management, in an email on Friday. He believes it will take another eight to ten years for China's GDP to match that of the United States.
He said new government restrictions following coronavirus cases in China in recent weeks will likely give mixed signals of first-quarter growth, while the U.S. will benefit from government support passed late last year.
Tai added that GDP is "just a convenient comparison" and that investors should also consider differences in economic structure, income, development and competitive advantage when making decisions.
China's trade surplus with the US increases
For economists worried about the sustainability of long-term growth, much of China's recovery last year was due to traditional industries like manufacturing rather than increased domestic consumption.
As overseas demand for face masks and other medical protective equipment increased, China's exports rose 3.6% in US dollars in 2020, while imports fell 1.1% over the same period.
China's closely monitored trade surplus with the United States rose to $ 317 billion in 2020 from $ 296 billion a year earlier, despite the fact that the two countries signed a trade agreement in January last year to reduce that surplus.
On the other hand, China's domestic consumption did not recover as quickly as the rest of the economy.
Retail sales fell 3.9% in 2020 while those in the US rose 0.6%.
Bruce Pang, head of macro and strategy research at China Renaissance, believes the coronavirus will allow China to overtake the US three to five years earlier than previously expected.
But he said the "real milestone" will be when China can overtake the US in terms of GDP per capita.
At roughly four times the number of people in the US, China's GDP per capita rose to around $ 11,000 in 2020, while that of the US was more than five times higher at $ 63,200.