US and China Clash in Global Economic Hegemony Battle with Divergent Fortunes

Bloomberg "US Economic Growth Surpasses China"
Growth Gap Emerges During COVID-19 Recovery
"China's Outlook as World's No.1 Economy Also Delayed"

Bloomberg reported on the 25th (local time) that the United States is surpassing China in the global economic competition.

Looking solely at nominal Gross Domestic Product (GDP) last year, the U.S. grew by 6.3%, outpacing China's 4.6% increase. Bloomberg stated, "This includes U.S. inflation, but the 2023 performance suggests more," adding, "The U.S. is emerging from the COVID-19 pandemic in a better position than China."

Experts assess that significant setbacks have occurred regarding the forecast that China would overtake the U.S. to become the world's largest economy. Previously, in December last year, the UK Institute of Economic and Business Research released a report stating that China would surpass the U.S. as the world's largest economy by 2038. The Chinese State Council Development Research Center predicted this would happen six years earlier, in 2032.

Eswar Prasad, a Cornell University professor and former head of China affairs at the International Monetary Fund (IMF), evaluated, "Due to the strong performance of the U.S. economy and the short- and long-term headwinds facing China's economy, the certainty of predictions that China's GDP will eventually surpass the U.S. has diminished." Josh Lipsky, director of the Geoeconomics Center at the Atlantic Council, said, "The discussion that China will become the world's largest economy by GDP is not indefinitely postponed but has been delayed."

This situation is also reflected in the stock markets. The U.S. stock market continues to hit record highs and soar. In contrast, the Chinese stock market has been declining since 2021. Over the past three years, the market capitalization lost in mainland China and Hong Kong stock markets amounts to $6 trillion (approximately 8,016 trillion KRW).

The trend runs counter to experts' expectations. Early last year, the U.S. experienced its worst inflation. In response, when the U.S. Federal Reserve (Fed) raised interest rates, predictions of an economic recession emerged widely. Meanwhile, China was expected to show tremendous recovery after completely lifting the strict lockdown measures taken to curb the spread of COVID-19.

However, contrary to predictions, the U.S. recorded an extraordinary real GDP growth rate of 4.9% in the third quarter of last year, followed by 3.3% growth in the fourth quarter. Bloomberg reported, "Inflation is falling to the Fed's target of 2%, and fears of a recession are disappearing."

On the other hand, China is struggling with a prolonged real estate market slump and the worst deflation in 25 years. Exports, a key pillar of growth, have decreased, youth unemployment has risen, and local governments are staggering under debt. Bloomberg reported, "According to Chinese government statistics, GDP grew by 5.2% in 2023, meeting official targets, but there are suspicions that the reality differs." Earlier, Bloomberg cited Logan Wright, director at Rhodium Group, estimating China's GDP growth rate last year at 1.5%.

Experts analyze that this gap between the two countries emerged during the COVID-19 recovery process. Lipsky said, "COVID-19 covered many deep and structural weaknesses in China. Depending on reform capacity, this will last for a decade."

Adam Posen, president of the Peterson Institute for International Economics, argued, "During the pandemic, authoritarian and unilateral power exertion across China's economy and society exacerbated fundamental economic weaknesses." He added, "This makes households and small businesses uneasy and leads them to hold cash," describing it as a disease called "economic long COVID," a chronic condition leading to lack of vitality and prolonged stagnation.

Some also point out that the U.S. cannot be completely reassured in the long term. The Fed's goal to reduce inflation to 2% is still ongoing, and signs of weakening are appearing in the labor market. However, Bloomberg evaluated that the U.S. surprised economists with its economic resilience after the pandemic. Posen said, "The U.S. may have even reached a new stage of productivity improvement that allows the economy to grow faster without causing inflation."

This content was produced with the assistance of AI translation services.