Owais Khan Marwat
Since the Mao era, China’s share of the world’s GDP has decreased significantly in the last two years. The country’s ascent to prominence in the global economy is taking a historic turn backward. It could mark the end of the most significant worldwide narrative of the last fifty years.
China opened up to the outside world in the 1980s and experienced significant growth in the following decades after a period of stagnation under Mao Zedong in the 1960s and 1970s. Its contribution to the world economy surged from less than 2% to 18.4% from 1990-2021, marking an almost tenfold increase.
This rapid ascent is unparalleled in history. However, China’s economic share in the global economy saw a slight decline in 2022, and it is projected to decrease further to 17% this year. The 1.4% decline over the past two years represents the most substantial decline since the 1960s.
These figures are expressed in “nominal” dollar values, which represent a country’s relative economic strength most accurately because they are not adjusted for inflation.
Although the goal may be becoming more challenging to achieve, China aims to restore its imperial status from the 16th to the early 19th century, a period during which its contribution to global economic output peaked at one-third.
The global landscape could undergo shifts with China’s potential decline. Since the 1990s, China’s GDP share has significantly increased, largely at the expense of Japan and Europe, whose GDP shares have remained relatively stable in the past two decades. The United States and other developing countries have played a crucial role in filling the void left by China.
The global economy is predicted to expand by $8 trillion in 2022 and $105 trillion in 2023. China is expected to receive none of that gain, while the US will receive 45%, and other emerging countries will get 50%. Among these, just five nations, India, Indonesia, Mexico, Brazil, and Poland, will contribute to half of the gains for growing nations.
This serves as a clear indication of potential shifts in future power dynamics. Additionally, independent and foreign sources support the argument for China’s declining nominal GDP share in the global economy. Despite Beijing’s claims that China’s rise is reversing, the evidence suggests otherwise.
Most analysts focus on real GDP growth adjusted for inflation, which is one reason this aspect has largely gone unnoticed. Additionally, by accounting for inflation, Beijing has consistently claimed that real change consistently meets its declared target of 5%.
Due to the ongoing population crisis, China’s share of the global working-age population has already declined from a peak of 26% to 19%. Projections suggest that over the next 35 years, this percentage will further decrease to 9%.
With the diminishing proportion of workers on a global scale, it’s almost certain that economic growth will become more marginal.
Moreover, China’s debt has reached historically high levels for a developing nation, and over the past decade, the government has taken an increasingly interventionist stance.
As a result, the growth of output per worker, a key measure of productivity, has slowed down. With a shrinking workforce and sluggish growth in output per worker, China will likely face significant challenges in reclaiming its share of the global economy.
China’s GDP is expected to contract in nominal US dollars in 2023, primarily due to the significant devaluation of the renminbi since 1994. Beijing’s only chance of regaining global market share in the coming years lies in a substantial increase in either inflation or the renminbi’s value.
However, both scenarios are unlikely, given the constraints on real GDP growth. China is among the few economies grappling with deflation, as it contends with a debt-driven real estate bubble, typically leading to the depreciation of the national currency.
The renminbi faces growing pressure as investors withdraw their funds from China rapidly. Since records began, this marks the first instance of foreign investment in Chinese factories and other projects declining by $34.1 billion in the third quarter.
Local investors are also exiting, a trend often observed as they leave problematic markets before foreign counterparts. Chinese investors actively explore global real estate opportunities and swiftly engage in external investments.
President Xi Jinping has expressed unwavering confidence in China’s continued upward trajectory, emphasizing its historical advantages. His recent meeting with top U.S. CEOs and President Joe Biden in San Francisco suggested a diplomatic tone, acknowledging the importance of foreign economic partnerships for China’s ongoing development.
Nevertheless, despite these efforts, China’s global financial share will likely continue to diminish in the foreseeable future. The emergence of a post-China world appears to be underway.
*The author is a research professional at the Institute of Strategic Studies Islamabad (ISSI) and an author at Stratheia-Margalla Policy Digest.
**The opinions in this article are the author’s own and may not represent the views of The Diplomatic Insight. The organization does not endorse or assume responsibility for the content.