How China’s Economy Compares to the US

The American and Chinese economies bucked growth predictions in the first quarter of 2024.

U.S. expansion slowed amid rising inflationary pressure, but unemployment remained low. Meanwhile, several sectors of China’s economy showed signs of recovery, but some of it tapered off by March.

The economic landscapes of both countries have diverged since the end of the pandemic. The U.S.’s has shown resilience, driven by consumer spending and a robust job market. China’s has been weighed down by a property-sector crisis, faltering foreign investment and tepid consumer confidence, complicating its trajectory.

The U.S. economy grew faster than expected last year on the back of a hardy job market and strong consumer spending, with a real GDP growth rate of 2.5 percent.

In the first quarter of this year, however, the economy expanded by just 1.6 percent year over year, down from 3.4 percent in October-December 2023 and less than the 2.4 percent predicted by Wall Street.

The figure marks the slowest growth rate in two years amid rising inflation and declining public and government spending.

“The economy will likely decelerate further in the following quarters as consumers are likely near the end of their spending splurge,” Jeffrey Roach, chief economist at LPL Financial, told CNBC.

While inflation is driving down savings rates and increasing pressure on consumers, Roach expects it will let up later this year as demand slows overall.

A strong job market continues to buttress the economy. The Department of Labor reported an unemployment figure of 3.8 percent, staying within the 3.7 percent to 3.9 percent range since August.

The International Monetary Fund (IMF) projects the U.S. will finish strong with a 2.7 percent GDP annual growth but predicts the unemployment rate will tick upward to 4 percent for 2024.

Meanwhile, China, the world’s second-largest economy, posted 5.3 percent annualized growth for the January-March period, up slightly over last quarter and 0.6 percent higher than analysts predicted in a Reuters poll.

This first-quarter showing comes after the country’s National Statistics Bureau said the economy expanded by 5.2 percent in 2023, meeting its target of “around 5 percent”—a target set again for this year by China’s cabinet-like State Council.

However, a closer look at the Q1 data shows that expansion in several sectors, such as exports, took place mainly in the first two months. This has raised questions over the resilience of China’s belated post-pandemic recovery.

China’s jobless rate for the first quarter averaged 5.2 percent, continuing along the trend of between 5 percent and 5.3 percent since early last year.

China calculates its quarterly unemployment averages as a percentage of jobless people relative to the sum of the unemployed and employed segments of the population. Notably, the government excludes those living in rural areas, which comprise about one-third of the population, from its reports.

The IMF expects that China will fall short of goal and see its economy expand by just 4.6 percent this year, with an overall 5.1 percent unemployment rate.

Many subject-matter experts, including China’s former No. 2, Li Keqiang, have expressed doubt over the reliability of China’s growth numbers.

Asked whether China’s cooling economy can still overtake the U.S. in the coming years, University of Oxford China Centre economist George Magnus told Newsweek that since 2020, the gap between the U.S. and Chinese GDPs has widened from about $5 trillion to $10 trillion in nominal terms.

“This as U.S. nominal GDP has grown at a compound rate of about 6.75 percent and China’s at 6 percent. If this keeps going, China will never catch up the U.S.,” he said.

Nominal GDP measures the total value of goods and services produced in an economy at current market prices, without adjusting for inflation.

Amid persisting economic headwinds in China, including deflation, the window in which it might catch up with the U.S. is closing.

“There’s now a rising chance, I’d say, that the great crossover will not happen at all,” Magnus said.

Several industries in which China is a world leader grew significantly last quarter, however. Production of electric vehicle charging stations shot up by 41.7 percent, for example, and electrical components by 39.5 percent.

“Beijing is banking that ‘new productive forces’ will take over from property and infrastructure in driving higher GDP growth. I think this is a pipedream,” Magnus said. “Islands of technological excellence in a sea of macro-economic troubles is more like it.”

Data from top financial institutions like the World Bank show the gap between the two largest economies widened further last year. China’s economy was just two-thirds the size of its geopolitical rival, down from 70 percent in 2022 and 76 percent in 2021.

Newsweek reached out to the Chinese Embassy in the U.S. with a written request for comment.