China’s rapid economic growth over the past few decades has led many to speculate about when and if China’s economy will surpass the United States to become the world’s largest. There are several key factors to consider when comparing the economies of China and the US, including economic output, standards of living, infrastructure, and influence on the global economy.
China’s Economic Growth
Since initiating market reforms in 1978, China has become one of the world’s fastest-growing major economies, with average growth rates of 10% for the past 30 years. According to the World Bank, China’s GDP in 1980 was $303 billion, representing 2% of the global economy. By 2020, China’s GDP had soared to $14.7 trillion, accounting for 17% of the global economy and placing it just behind the US at $20.9 trillion or 24% of the global economy.
However, when adjusting for purchasing power parity (PPP), which accounts for differences in price levels between countries, China’s GDP in 2020 was actually estimated to be $24.2 trillion, much closer to the US at $20.8 trillion. China is also now the world’s largest exporter and second-largest importer of goods.
| Country | GDP 2020 (Nominal) | GDP 2020 (PPP) |
|---|---|---|
| China | $14.7 trillion | $24.2 trillion |
| USA | $20.9 trillion | $20.8 trillion |
China’s share of global GDP on a PPP basis rose from 2.3% in 1980 to 18.3% in 2020. The OECD projects China will overtake the US as the world’s largest economy on a PPP basis sometime around 2030.
US Still Leads in Standard of Living
Despite China’s rapid economic expansion, the United States still boasts a significantly higher standard of living. US GDP per capita in 2020 was approximately $63,544, over 6 times higher than China’s approximately $10,500. This vast difference reflects the fact that China has 4 times the population of the United States. China’s large population means that its massive GDP is spread across far more people, bringing down its per capita income.
In addition, China’s economic growth has led to rising income and regional inequality, with advanced coastal provinces benefitting the most while rural inland provinces lag behind. The US maintains much higher average wages, as well as higher rates of consumer spending. The US also has better infrastructure, education, healthcare, and public services to contribute to a high quality of life.
| Country | GDP per capita 2020 |
|---|---|
| USA | $63,544 |
| China | $10,500 |
Even if China’s total GDP were to surpass the US, its massive population means it will take significantly longer for Chinese living standards to approach American levels. Significant policy reforms would also be required to distribute China’s economic gains more evenly across its population.
US Maintains Edge in Innovation and Competitiveness
The US maintains key structural advantages that will continue to contribute to a strong, advanced economy. The US has robust property rights protections, reliable contract enforcement, efficient capital markets, and superior infrastructure compared to China. Freedoms of speech and information also foster more innovation in the US.
In the World Economic Forum’s Global Competitiveness Report 2019, the US ranked 2nd overall while China ranked 28th. The US ranks in the top 10 in measures like university-industry collaboration, venture capital availability, and technology skills. It also excels in business dynamism and capacity for innovation.
China meanwhile ranks low for institutional pillars like intellectual property rights and accountability. Its financial system also scores poorly compared to the depth and openness of US capital markets. While China is improving rapidly, its ranking shows it still has progress to make across many aspects of competitiveness.
| Country | Global Competitiveness Ranking |
|---|---|
| USA | 2 |
| China | 28 |
The US also has a dominant position in many cutting-edge technologies and sectors with strong future growth potential like biotechnology, renewable energy, aerospace, and information technology. China’s growth has been driven by manufacturing, exports and infrastructure investment, but the US still leads in most knowledge-intensive sectors.
China’s Increasing Global Influence
As China continues to grow into a major global economic power, its influence over the global economy is steadily increasing as well. China is now the top trading partner for over 120 countries, far exceeding the US. China’s Belt and Road initiative provides infrastructure and investments in emerging markets across Asia, Africa and Europe. The newly created Asia Infrastructure Investment Bank led by China aims to fund regional development. Yuan swap lines allow central banks to access liquidity in China’s currency.
However, the US dollar remains the dominant global reserve currency, accounting for nearly 60% of global foreign exchange reserves in 2020 vs just 2% for China’s renminbi. The dollar’s status as the medium of international trade and finance grants the US immense economic influence. US capital markets also remain a primary source of lending and equity fundraising for governments and companies around the world.
While China’s economic and financial clout is rising exponentially, it will take a long time to reach parity with the US. China would need to liberalize its financial system, continue opening its economy to foreign investors, and allow greater exchange rate flexibility for the renminbi to become a true global reserve currency.
Conclusion
China’s rapid growth over the past four decades has enabled it to emerge as a major global economic power. However, when measuring comprehensive national power and competitiveness, the US still maintains significant advantages. Although China may overtake the US in sheer economic size in the next decade, it remains far behind in terms of GDP per capita, standards of living, and economic freedoms. Structural advantages in areas like innovation, rule of law, and open capital markets suggest the US can remain highly competitive and productive. While China’s global influence is rising, the US still wields unparalleled power in international trade and finance.
Rather than a zero-sum game, China’s growth presents opportunities for mutual benefit and shared prosperity through increased trade, investment, and cooperation. With prudent economic policies and continued reforms, China can continue growing into an advanced economy, while the US maintains strength through technological leadership and financial innovation. Global challenges like climate change and public health also require both nations to collaborate. While economic competition exists, it does not preclude finding areas of common ground to lift living standards globally.
