On the evening of October 26th, the Bureau of Economic Analysis (BEA) of the US Department of Commerce released US GDP data for the third quarter, with a month on month annualized rate of 4.9%, which is much higher than the previous two quarters. It is surprising that the US economic data can still perform so well despite the Federal Reserve's cumulative interest rate hike of 525 basis points. This is also the reason why the market suspects that the US authorities' data is fraudulent, which is not in line with normal logic.
Of course, the GDP growth rate of the United States is still slightly lower than that of China. The data previously released by the National Bureau of Statistics showed that China's GDP increased by 4.9% year-on-year in the third quarter, and by 5.2% year-on-year in the first three quarters. Although the single quarter is the same as the United States, the cumulative increase in the first three quarters is much higher than that in the United States. However, in terms of economic aggregate, the gap between China's GDP and the United States in the first three quarters of this year has actually widened compared to the first three quarters of last year.
What's going on here? Let's take a look at the specific data first.
The total GDP of China from January to September 2023 was 91.3 trillion RMB, and the newly announced 9-month economic total of the United States was 20.3 trillion US dollars, which is equivalent to around 141.7 trillion RMB; The United States exceeded China by 50.4 trillion yuan in the first three quarters of this year.
The total GDP of China from January to September 2022 was 87.5 trillion yuan, while that of the United States was 19.1 trillion US dollars, which translates to approximately 124.9 trillion yuan in Chinese yuan; In the first three quarters of last year, the United States exceeded China by 37.4 trillion yuan.
Although China's GDP growth rate in the first three quarters was much higher than that of the United States, the gap in economic aggregate has widened, and the gap has been widened to as much as 13 trillion yuan. There are three main reasons for this.
Reason 1: The GDP base of the United States is large
First, we need to explain the difference between the GDP growth rates announced by the two countries. China uses the same period last year, that is, this year compared to last year; The United States uses a month on month discount rate, which can be simply understood as calculating the changes between two consecutive quarters before calculating the changes for the entire year.
BEA also announced the year-on-year growth rate of US GDP, which was 1.7%, 2.4%, and 2.9% in the first to third quarters, corresponding to our 4.5% in the first quarter, 6.3% in the second quarter, and 4.9% in the third quarter.
It can be found that even compared to the same period last year, China is still higher than the United States. However, with a large GDP base in the United States, even if the growth rate is low, more growth can still be achieved. Give a simple example to illustrate.
Assuming that Zhang San's salary was 10000 yuan last month, it will increase by 2% this month; Li Si's salary was 5000 yuan last month, which has increased by 3% this month; Zhang San's salary increase is 200 yuan, while Li Si's is 150 yuan; Although Zhang San's increase proportion is higher, the low salary base results in a smaller actual increase compared to Li Si.
Reason 2: Inflation benefits the nominal GDP of the United States
All the economic growth rates mentioned earlier are the actual growth rates after removing the factors of price changes, which are calculated based on the assumption that there is no change in prices (constant prices). The nominal GDP published by different countries is different, calculated based on current prices, so the more prices rise, the higher the nominal GDP value.
As is well known, the United States is experiencing high inflation, with the highest CPI from January to September reaching 6.4% and the lowest reaching 3%. High prices have made the US GDP in the first three quarters of this year somewhat "chubby". On the contrary, prices in China are relatively stable, and the PPI in the first three quarters even showed a year-on-year decrease, causing the actual wealth created to "shrink" when expressed in numbers.
It is also a table, sold for 1000 yuan last year and 1200 yuan this year. Although the price is 200 yuan higher, there has been no change in actual wealth. It is just a table. So the nominal GDP of the United States has the advantage of high inflation, and we have suffered a small loss.
Reason 3: The appreciation of the US dollar has lifted the overall economic output of the United States
Each country uses its own currency when calculating GDP, such as China using the Chinese yuan, the United States using the US dollar, Japan using the Japanese yen, Germany using the euro, and so on. In order to compare, it is necessary to unify the currency, which is usually converted to US dollars. Other currencies can also be used, and this article uses RMB.
Here comes a problem: the exchange rates between currencies of various countries are constantly changing, sometimes appreciating or sometimes depreciating, which can have an impact on the conversion of GDP.
The average exchange rate of the Chinese yuan against the US dollar in the first three quarters of 2022 was 6.54. This year, the US dollar is very strong, and currencies of various countries are depreciating. The average exchange rate of the Chinese yuan is 6.98. This means that the GDP of the same $100 can only be converted to 654 yuan last year, but this year it can be converted to 698 yuan, which is a full 6.7% increase.
The above three factors are the main reasons why the economic growth rate of the United States this year is lower than that of China, but the total GDP has increased even more. In fact, prices and exchange rates often distort data, exaggerate or underestimate an economy's true wealth creation ability, and the United States gained an advantage in both areas in 2023.
So it seems that the progress of China's desire to surpass the United States as the world's largest economy will be delayed? Not so, because there is another statistical comparison method for GDP - the purchasing power parity method.
This method minimizes the adverse disturbance of prices and exchange rates on GDP, but its drawbacks are high technical difficulty, cumbersome statistics, and easy statistical errors. However, the World Bank provides GDP data for each country under the purchasing power parity method.
Under the purchasing power parity method, China actually surpassed the United States a few years ago, and its GDP in 2022 exceeded $30 trillion, nearly $5 trillion more than the United States, firmly occupying the top spot.
However, the market does not mention the purchasing power parity method very much, so the data calculated by this method is not of public concern.
China and the United States are the two largest economies in the world, and the countries behind them are simply unable to match. The competition between the two giants appears in various fields, including economy, technology, military, and so on.
At present, the United States has certain advantages, but the gap is constantly narrowing. This is why the United States is suppressing China's development, afraid of being caught up with or even surpassed by China. However, the wheels of history are rolling forward, not hindered by manpower, and once the trend is formed, the obstacles cannot be reversed. Perhaps in terms of economic aggregate, it is the first area for the two countries to switch positions.
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