Will China Overtake the US?

It is the question of the moment.

Some British analysts believe that the Chinese economy is destined to excel, overtaking that of the US.

But not immediately, it should all happen in 2028.

Apparently, the basis of this assessment is above all elements of discretionary analysis, which lead us to believe that China is better able to overcome crises, such as the pandemic situation, and to relaunch the country, when indeed a crisis passes through it.

We ask ourselves: is it really so?

Will China Overtake the US?

A question of this type has a certain degree of complexity, and several elements must be considered.

For our part, we believe that these points should be examined above all:

  • Dictatorship versus democracy

  • Projection of normalized economic data

  • Yield curves: what do they project?

Dictatorship versus democracy

According to a certain theory of cycles, some countries are cyclically destined to take over others on the world stage.

But if that were the case, we would have witnessed a change, on the international scene, which should have seen the affirmation of other countries to the detriment of the USA.

Militarily, this doesn't seem to have happened.

Although the USSR and the Warsaw Pact had, for example, an overwhelming numerical superiority of conventional military forces, compared to NATO and the USA, they never managed to conquer the rest of the European territory.

And economically they have come to total failure, so much so that countries of the former Warsaw Pact are now part of NATO.

As for China, its authoritarian, if not dictatorial, methods may have somehow facilitated the imposition of coercive measures against the pandemic. Even if there are those who suspect it is a virus caused, or generated, by Chinese laboratories.

But this has not proven to be able to translate into a result of economic superiority, compared to the US.

A country that, therefore, like it or not, seems destined to maintain results of economic superiority.

Projection of economic data

Let's assume that the values ​​of the current US and Chinese GDP are equal and project the average growth of recent years.

For the moment, let's leave out the data recorded from the beginning of the pandemic to date.

Comparing the annualized quarterly GDP data, we immediately notice a superiority of the US data, compared to those of China.

The country with stars and stripes usually presents data of no less than 2 percent, but with even higher growth peaks.

If we want to be prudent and project growth at 2 per cent, starting from the value of 100, set equal to the current GDP, in 2028 we will therefore have a figure of 117.16.

Comparison on GDP

Considering the same type of data, however, China in recent years has never managed to exceed a growth of 1.8 percent.

Therefore, putting the current Chinese GDP equal to 100, in 2028 we will have a result equal to 115.34.

And this assuming already an annual GDP at par, even if the Chinese GDP data have sometimes been questioned by analysts, who believe that the true data are lower than those officially made public.

But, even apart from this criticism, thus putting GDP on par, this overcoming certainly does not seem feasible in 2028.

But let's consider the theory that China would be able to react economically better than the US to black swan situations, such as the pandemic.

The reality is once again different, again based on the data.

US GDP, again on an annual basis, during the phase between September and November was calculated to drop by more than 30%, but to recover growth of around 33%.

China experienced the greatest downside around a loss of about 9%, certainly much lower than the US.

But only to recover an increase of around 12%, currently down to around 3%.

All these data confirm that Chinese growth does not seem destined to exceed that of the United States.

The projections with the yield curve

But what do the markets think of the future growth of the two countries?

Will China Overtake the US? We ask the yield curve.

As is known, the greater the slope of the curve, in terms of the difference between short-term and long-term rates, corresponds to a projection of greater growth and vice versa.

The difference between the 1-year rate and the 30-year rate is 1.566 for the US and 1.081 for China.

Therefore, the yield curve also projects higher growth in the US.

Will China Overtake the US? Here are the conclusions

Both a historical analysis of the military and economic confrontation between democratic countries and dictatorial regimes, and the projection of economic data, do not seem to confirm the thesis of an overcoming of the Chinese economy compared to the US one.

The projection made with the yield curve also seems to confirm this failure to exceed.

Curated by Gian Piero Turletti, author of “Magic Box" is "PLT"

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