Unpacking China’s GDP

Unpacking China’s GDP
Unpacking China’s GDP
Unpacking China’s GDP Top

    Gross Domestic Product (GDP) is a key indicator of a nation’s overall economic size and power. GDP is generally defined as the total market value of all the finished goods and services produced within a country’s borders in a specific time period. GDP is by no means a perfect economic indicator. It lacks the complexity needed to provide a richer picture of economic health and productivity, and China’s official economic figures are known to be distorted. Nevertheless, GDP is among the most cited macroeconomic datapoints and warrants tracking. 

    When it comes to GDP, China is a global outlier in many respects. Its economy is far larger than that of developing countries, and it has sustained decades of rapid economic growth. Yet China’s economy also differs in many respects from the world’s leading, advanced economies. This ChinaPower tracker includes 10 charts with up-to-date data to help break down and compare key aspects of China’s GDP.

    Measuring China’s GDP

    For centuries, China and India each accounted for between one-fourth and one-third of global GDP, thanks in large part to their sprawling populations. This changed abruptly in the 19th century as industrialization enabled rapid increases in productivity in the United States and Europe. China and India correspondingly saw their relative share of the global economy shrink. This persisted until the late 1970s when China began initiating market-based reforms and opening to the outside world, which helped kickstart and sustain economic growth. Today, China’s share of global GDP stands at over 18 percent when adjusted for price differences—the largest of any country.

    The methods used to measure and compare GDP can significantly alter the outcomes. One method, nominal GDP, measures the goods and services produced in each country and converts them to a common currency such as the U.S. Dollar. This method is the most straightforward, but it allows for distortions resulting from price and currency fluctuations. Another method measures GDP at Purchasing Power Parity (PPP), which accounts for price level differences between countries. Measuring based on PPP has a large impact when comparing wealthy countries to developing countries. China’s nominal GDP is the second-largest after the United States, but measured at PPP, China’s GDP is larger than that of the United States by a considerable margin.1

    In many respects, China is an outlier among the world’s large economies. Most leading economies are in open, democratic societies, but China is an authoritarian state that significantly curtails individual freedoms. One way of showing China’s outlier status is by plotting GDP against Freedom Scores, a measure devised by Freedom House to assess political rights and civil liberties around the world. In 2022, China received a Freedom Score of 9—one of the lowest in the world, indicating “not free.” The other top-five largest economies (the United States, Japan, Germany, and the United Kingdom) all had scores above 80, indicating “free.” The next largest economy to share a similar Freedom Score with China—Saudi Arabia—has a GDP of $1.1 trillion—just 6 percent of the size of China’s. 

    China is also an outlier among many other leading economies in that it still labels itself a developing economy and seeks the accompanying benefits in international organizations. Yet the developing country label belies the more complex reality that development is highly uneven within China. Many of its coastal provinces are far wealthier than inland and western regions. In 2022, China’s wealthiest region, Beijing, boasted a per capita GDP of about $28,300, which is on par with many high income, advanced economies. However, China’s poorest province, Gansu, has a per capita GDP of less than $6,700, which is approximately equal to that of Libya. 

    Measuring China's GDP Growth

    China also distinguishes itself by achieving a much higher rate of GDP growth than much of the world. Even more notably, it has done so for decades. Since 1990, China has averaged breakneck GDP growth of just over 9 percent per year, at times peaking at over 14 percent. This is considerably faster than the average pace of its upper middle income peers and much faster than the global average (excluding China). China’s GDP growth has cooled in recent years, and in 2020 it plummeted to a recent low of just 2.2 percent due to the Covid-19 pandemic, but it has still outpaced much of the world.

    Economic forecasters devote considerable attention to predicting China’s future economic growth, but unforeseen events can significantly shift the outcomes of forecasts. In October 2022, the International Monetary Fund (IMF) projected that China’s GDP would reach $26 trillion by 2027, widening its lead over other major economies and significantly closing the gap with the United States. However, China’s economy has not had the rapid rebound from Covid-19 that many expected. IMF forecasts from October 2023 were much more conservative than the previous year, predicting that China’s GDP will only reach $24 trillion in 2028. Meanwhile, forecasts for U.S. GDP were revised upward, with the IMF projecting it to reach nearly $34 trillion by 2028, well ahead of China. It is worth noting, however, that after the release of its  October 2023 forecasts, the IMF again revised its short-term growth rates for China. Following better than expected economic performance in the third quarter of 2023, the IMF forecasted China’s GDP growth would reach 5.4 percent in 2023 (up from 5 percent) and 4.5 percent in 2024 (up from 4.2 percent).2

    Studies have shown that China’s official self-reported GDP figures are not perfectly reflective of reality. Political motivations have frequently led Chinese officials to pad economic data. As a result, there have been numerous attempts to use other measures to track China’s economy. One tool is the Federal Reserve Bank of San Francisco’s China Cyclical Activity Tracker (CCAT), which measures fluctuations in Chinese economic activity by taking a weighted average of eight non-GDP indicators in order to measure deviations in year-over-year growth relative to trends.3 The index is produced quarterly and displayed in units of standard deviation from the expected trend. Notably, even the CCAT index has its limitations since its indicators are skewed toward measuring industrial activity, which does not correlate exactly with overall economic activity.

    Breaking Down China's GDP

    China’s economic size and rapid growth are not the only thing that set it apart. It also relies on different drivers of growth than many large economies. China’s economic development has been fueled in large part by a sprawling industrial sector, which includes manufacturing, construction, mining, and utilities. In 2021, value-added industrial output accounted for 39 percent of China’s GDP—more than double that of the United States (18 percent). Consequently, China’s service sector (53 percent of GDP) is much smaller than in the United States (78 percent) and most other advanced economies. Notably, however, this trend is changing. In 2010, China’s service sector amounted to just 44 percent of GDP, considerably lower than today. 

    China’s massive industrial and manufacturing output has helped to fuel the country’s economic growth, but it has also left China heavily reliant on exports. Economic policymakers have hoped to ween China off export-driven growth toward an economy that is driven more by domestic consumption. Yet China’s GDP remains significantly linked to exports. Amid the Global Financial Crisis of 2009, plummeting global demand led to a stark drop in Chinese exports, which resulted in a steep decline in the share of Chinese GDP growth coming from net exports. Conversely, during the Covid-19 pandemic, large government stimulus measures in the United States and Europe boosted demand for Chinese exports. Owing to that, 25 percent of Chinese GDP growth in 2020 came from exports—the highest level since 1997.

    China’s export-heavy model of economic growth leaves less room for consumption-led growth. This is markedly different from most advanced economies, where domestic consumption is the main driver of economic growth. In 2021, consumption accounted for just 54 percent of China’s GDP, while in the United States and the United Kingdom, that figure was above 80 percent. Recent trends show that China is not closing that gap. In fact, consumption as a percent of GDP in China has fallen considerably over the last two decades. 

    Photo Credit: AFP via Getty Images

    China Power Team. "Unpacking China’s GDP" China Power. December 20, 2022. Updated November 8, 2023. Accessed March 1, 2024. https://chinapower.csis.org/tracker/china-gdp/