Financial performance China’s performance has been exceptional over the past three decades, with the country recording remarkable and persistent high growth that has transformed a low-income economy into an upper-middle-income economy. At market exchange rates, China’s GDP was $18.3 trillion in 2022, 73% of US GDP and 10 times the 7% of US GDP in 1990 .
China’s per capita income is now close to $13,000, about 17% of US per capita income – down from less than 2% in 1990. Over the past 15 years, China has been the main driver of global economic growth, accounting for 35% of global nominal GDP growth, while the US accounted for 27%.
China has achieved this without many features that economists identify as crucial for growth, such as a well-regulated financial system, a strong institutional framework, a market-oriented economy, and a democratic and open system of government. Until the disruption caused by the COVID-19 pandemic, the Chinese economy had gone through periods of domestic and global turmoil that had left it seemingly unscathed.
But its critics have long argued that China’s economic collapse is imminent, pointing to numerous weaknesses. The country’s growth was fueled by investment in physical capital, especially real estate, which was financed by an inefficient banking system. With domestic debt levels soaring and on the rise, the housing market unraveling and the labor force shrinking, some analysts say doomsday has finally arrived.
However, they are probably wrong. Recognizing that its growth model was inefficient and financially risky, the Chinese government has set out to rebalance the economy. This means: (a) reducing reliance on investment-led growth and highlighting household consumption as a key driver of GDP growth, (b) generating more growth from the services sector than from low-skilled manufacturing, and low wages and (c) moving away from physical capital intensive development in a way that improves employment growth.
Although the path in this direction is uneven, there has been significant progress towards the goal of rebalancing growth, with household consumption becoming the main driver of growth and the services sector becoming more important than manufacturing.
