Number Theory: US vs China: the rivalry of the 21st century

What are the defining features of this rivalry? Here are three charts that describe this in detail

The 20th century was transformative for the world as we know it today in many ways. It saw two World Wars, the first communist revolution (and those that followed), complete decolonisation, and significant economic growth. While it is difficult to pick up one defining feature of the 20th century, the changing nature of Sino-US ties from political and ideological hostility to economic cooperation -- its peak was China joining the World Trade Organisation (WTO) in 2001 -- was among the most transformative processes in the later decades of the 20th century. The momentary Sino-US bonhomie then gave way to mutual distrust and strategic competition between the world’s two largest economies, and this competition and its trajectory will pretty much define the world in the first half of this century.

Representative file photo (Reuters)

What are the defining features of this rivalry? Here are three charts that describe this in detail.

• 
  China’s impressive economic growth notwithstanding, it is still significantly behind the US in economic might

  In 1960, the earliest period for which data is available on the World Development Indicator database of the World Bank, China’s GDP was just 11% of the US GDP in current dollar terms. By 1990, this number had fallen to about 6%. But then came China’s economic turnaround. Its GDP reached 25% of US’s GDP by 2007 and 50% of US’s GDP by 2012. China’s economic peak vis-à-vis the US came in 2021, when its GDP reached 76% of the US’s GDP. In the last couple of years, China has lost its momentum, though, and in 2023 Chinese GDP was 65% of US GDP. With China’s population already peaking and the economy losing its growth momentum, more experts believe that China will never overtake the US in terms of GDP. In terms of per capita GDP, the gap is even larger with China’s per capita GDP just 15.4% of US’s per capita figure. The bigger gap in Chinese and US per capita GDP values indicates that mass living standards in the two countries are still very different. China has been the world’s second largest economy since 2010, but it was still ranked 71st among 185 countries for which data is available for 2023 in terms of per capita GDP in current dollars. See Chart 1: China’s GDP and per capita GDP as a share of US values
• 
  But there are areas where China has surged ahead of the US in the world economy

  Exports are the most important indicator here. As late as 2000, a year before China joined WTO, the ratio of Chinese and American merchandise exports was just 0.3. This crossed 1 in 2007 and reached a peak of 1.89 in 2021 before falling marginally to 1.67 in 2023. If one were to compare China’s edge in high-technology exports -- products with high R&D intensity, such as in aerospace, computers, pharmaceuticals, scientific instruments, and electrical machinery – the China-US export ratio increased from 1.42 in 2007 to 5.53 in 2021. To be sure, Chinese export prowess is largely limited to goods and the US’s trade deficit is relative smaller when it comes to exports of goods and services. It is China’s growing advance in manufacture of high-technology goods – a lot of it has happened thanks to China harvesting such technology (through both legitimate and questionable means) from developed countries – that has made it a strategic competitor to reckon with for the US and its allies. Potential dual use of such technological know-how for military purposes and growing privacy concerns around control of data generated by use of digital equipment have only added to concerns vis-a-via Chinese domination. This is exactly why the US and its allies are putting roadblocks, including explicit sanctions, on China’s ability to access such technological know-how. China, on the other hand, is trying everything it can to circumvent these impediments. See Chart 2: Ratio of Chinese and US exports
• 
  China’s comparative advantage in high-tech goods will give it a bigger economic footprint even in advanced countries

  The Chinese economy is far ahead its competitors in sectors such as renewables and electric vehicles when it comes to cost-effectiveness (https://tinyurl.com/msu5hmu5). In fact, things have reached such a level that even European countries are now asking for technology transfer from China in green energy sectors (https://tinyurl.com/mvz84vva). That China is becoming an economy which is looking to expand its footprint in the rest of the world can also be seen in the sharp increase in outward FDI from China in the last decade. This trend will only increase irrespective of China’s overall growth prospects. See Chart 3: China’s inward and outward FDI stock as a share of US
• The only question is whether China can avoid a geopolitical confrontation with the US

  There are signs that China is past the peak of its economic momentum. With an ageing population, slowing economic growth, and living standards well below that of advanced countries, the Chinese regime will feel more pressure to be seen as delivering on the economic front. China’s efforts to boost its economic prowess via sunrise sectors such as renewables and high-end electronics will be frustrated by western measures to stall this rise. Such a pushback, along with the US shifting its strategic focus from the Atlantic to the Indo-Pacific, will only increase the temptation for the Chinese regime to precipitate things on the geopolitical front. The prospects of this conflict are bound to keep the world on tenterhooks in the near future.