Ignore the 5.2% Chinese growth rate for 2023, in $ terms it is actually down 1%

Li Qiang, the Chinese Premier, announced that China's economy expanded by approximately 5.2% in 2023. Comparing with Q4-2022 figures, in US dollar terms, China's economy is down 1%.

During the Davos conference, Li Qiang, the Chinese Premier, announced that China's economy expanded by approximately 5.2% in 2023. This figure was revealed a day prior to the official release of the GDP data, leaving a lot of analysts scratching their heads. Earlier, at the National People's Congress in March 2023, China had set an economic growth target of 5% for the year, meaning the new data suggests the economy outpaced the anticipated target.

Although the reported growth rate may paint a rosy picture of China's economic situation, a deeper analysis reveals several underlying issues. The 5.2% growth rate is calculated in local currency (Renminbi) terms and adjusted for inflation using the Renminbi deflator. However, if we shift our focus to China's nominal GDP in US dollar terms, a different story emerges. According to Bloomberg, China's year-end 2023 GDP stood at $17.8 trillion, marking a 2.2% decrease from its peak of $18.2 trillion at the end of Q2-2022. Comparing with Q4-2022 figures, in US dollar terms, China's economy contracted by almost 1% in 2023.

This discrepancy raises questions about the reported growth figures. Despite officials highlighting a 5.2% growth rate at Davos, the reality in dollar terms reflects a contraction of the Chinese economy compared to the previous year. Two primary factors contribute to this situation. First, the Chinese Renminbi has significantly depreciated against the US dollar, affecting the GDP value when converted to dollars. Secondly, China's inflation rate, crucial in calculating real GDP, is unusually low compared to global trends. With most countries grappling with high inflation rates (even Japan!), China's inflation at -0.3% YoY is an outlier, suggesting that even the nominal GDP in Renminbi terms grew less than 5.2%.

Moreover, with China's nominal GDP in dollar terms shrinking and the US GDP growing amidst higher inflation, the economic gap between the two countries has widened to approximately $10 trillion. This development challenges earlier projections that China's GDP would surpass that of the US before the end of this decade. Given China's current demographic trends and economic data, it seems increasingly unlikely that China will overtake the US economy in terms of size, either in this decade or probably even this century.