Analysis & Opinions - Barron's

Betting on China's Economic Growth

| Apr. 28, 2023

The Economist's recent cover story declaring that the US economy is “leaving its peers ever further in the dust” is still making waves in Washington. Particularly among those who feel the deep divisions in the country, are disheartened by the prospects of a rerun of the 2020 election between an octogenarian and an indicted Trump, and see the looming specter of a stalemate between Biden and House Speaker McCarthy over raising the debt ceiling that could force the nation to default, the article’s bottom line offers welcome news. By accentuating Team USA’s underrepresented strengths, the article provides reassurance that despite all our challenges, we are Number 1.

The inconvenient truth, however, is that The Economist reaches this stunning conclusion by excluding the US’s only true peer: China. Instead, it compares the US only with competitors in the G7: Canada, France, Germany, Italy, Japan, and the UK. In that race the US is not only ahead but extending its lead. But to declare the US the winner for outrunning other members of the G7 is like awarding an American Olympic sprinter the gold medal by excluding the world champion Usain Bolt. The Global South’s criticism of the G7 as an obsolete, aging, pale club of former imperialists is overblown. But the incandescent fact is that since its founding a half century ago, the G7 economies’ share of global GDP has been steadily shrinking. Today, their seven economies account for just 44% of the global total (30% measured by the PPP yardstick that the IMF and CIA use as the best single metric for comparing national economies).



In the struggle to shape the 21st century international order, if the contenders were limited to the US and the six other former great powers of the G7, we could be heartened that the US was extending its lead. But the defining challenge of this new world is the rivalry between the US and a meteorically rising China. GDP is, of course, not everything. But it does create the substructure of power in relations among nations. And when we look at the data rather than the declarations, however inconvenient, brute facts are hard to deny. Whose economy has risen from one-tenth the size of the US’s when it joined the WTO at the beginning of this century to three-quarters that of the US last year? Whose economy has grown faster than every G7 nation in every year for the past three decades? Who will have the fastest-growing “big economy” in the world this year?

Official reports of China’s performance in the first quarter of 2023 were released last week: China grew 4.5% driven by domestic consumption and exports that increased 15%. What will happen in the next three quarters and beyond remains to be seen. But investors, companies, and countries have to make their best judgements. And in the race between the US and China, individuals who have the best track records are not expecting the US to outrun China.

Indeed, just the opposite. Except for a few eccentric academics and editorialists who have been promoting a “peak China” theory, everyone is expecting China’s economy to grow faster than the US this year. They are also expecting it to grow faster than the US next year. And in 2025 and as far beyond that as any eye can see. The only question informed analysts and investors are debating is: how much faster than the US will China’s economy grow this year? Twice as fast? Three times the US? More?

If the authors of the Economist article, or advocates of the “peak China” theory or some other contrarian view are serious about their claims that the US is leaving its peers in the dust, I suggest they find a colleague and make a bet like the one I’ve offered my colleagues at Harvard. Specifically, I’m prepared to bet up to $1000 on the proposition that in 2023 US GDP will not grow faster than China’s. Indeed, I’ve made bets that the US will not grow half as fast as China this year.

Before putting their money down, however, I suggest those tempted to make a bet first review the facts. The consensus forecast for 2023 includes the IMF, the US CBO, the major investment banks, and most academic economists. All of these foresee the US economy growing at somewhere between 0.1% and 1.6% this year, and China’s growth as between 4.8% to 6%. My best judgment is that when the books on 2023 are closed, China will have grown more than three times the rate of the US.



It is also worth reflecting on the implicit bets that have been made by executives with their companies’fortunes on the line. The CEO of the worlds most valuable company, Tim Cook of Apple, took center stage at the China Development Forum in Beijing last month to explain why he has bet his company’s future on China’s continued growth. While expanding in India and elsewhere in Southeast Asia to diversify its supply chain, Apple still produces 95% of iPhones, iPads, and MacBooks in China. The longtime chairman of one of the worlds most recognizable consumer brands, Howard Schultz of Starbucks, sees China becoming the companys largest market by 2025. Starbucks opens a new Chinese location every nine hours. And the worlds richest and most eccentric entrepreneur, Elon Musk, doubled down on China two weeks ago, announcing a second assembly line to produce Tesla batteries in Shanghai. In Musk’s words: China in the long term will be our biggest market, both where we make the most number of vehicles and where we have the most number of customers.”

At the beginning of 2023, the US’s real GDP stood at $20 trillion and China’s at $16 trillion—leaving a gap of $4 trillion. If the US were leaving its closest peer in the dust, at the end of 2023, that gap will have widened. Barring some unexpected disruption that turns the overwhelming consensus on its head, however, when we look at the numbers rather than the narratives, we will see that the gap has continued to shrink—as it has in each of the past 46 years.

  – Via Barron's.

About This Analysis & Opinions

Betting on China's Economic Growth
For more information on this publication: Belfer Communications Office
For Academic Citation: Allison, Graham.“Betting on China's Economic Growth.” Barron's, April 28, 2023.