China in Transition

# Dramatic Shift in Global Economic Power due to the Rise of China: Focusing on international comparisons of GDP

Chi Hung KWAN
Consulting Fellow, RIETI

The Chinese economy has entered a high-growth period since shifting to reform and open-door policies in the late 1970s with the average annual growth rate from 1980 to 2015 reaching 9.7%, which is significantly higher than those of most major countries and the world as a whole (Figure 1). As a result, China's gross domestic product (GDP) increased 36.3 times from $302.9 billion in 1980 to$10,982.8 billion in 2015, and its share of the world's GDP (in nominal terms, converted to U.S. dollars) rose from 2.7% to 15.0% (Figure 2). Over the same period of time, China's per capita GDP also increased from $306.9 to$7,989.7 (26.0 times), and its ranking in the world rose from 127th among 139 countries and regions to 76th among 189 countries and regions (Note 1). China has become the world's second largest economy after the United States in terms of GDP, and its per capita GDP has reached the level of a middle-income country.

Here, I will highlight the shift in global economic power caused by the rise of China by comparing changes in GDP and per capita GDP of China from 1980 with those of major countries such as India, Japan, and the United States (Note 2) (Table 1).

Table 1: GDP, Population, and Per Capita GDP of China
― Comparison with Major Countries ―
GDP (billion dollars) Population (million people) Per capita GDP (dollars)
1980 2015 1980 2015 1980 2015
China 302.9 10,982.8 987.1 1,374.6 306.9 7,989.7
India 189.4 2,090.7 685.7 1,292.7 276.3 1,617.3
Japan 1,087.0 4,123.3 116.8 126.9 9,308.9 32,485.5
US 2,862.5 17,947.0 227.6 321.6 12,575.6 55,805.2
GDP ratio (%) Population ratio (%) Per capita GDP ratio (%)
1980 2015 1980 2015 1980 2015
China/India 159.9 525.3 144.0 106.3 111.1 494.0
China/Japan 27.9 266.4 845.3 1083.0 3.3 24.6
China/US 10.6 61.2 433.6 427.4 2.4 14.3
Source: Compiled by the author based on IMF, World Economic Outlook Database, April 2016

Like India, China has an enormous population, but for a long time, its GDP was not very large because of its low per capita GDP. China's per capita GDP ($306.9) was nearly the same as that of India ($276.3) in 1980, but by 2015 it grew to 4.9 times that of India (\$1,617.3). On the other hand, while the population of India increased from 686 million in 1980 to 1.293 billion in 2015 (up 88.5%), a pace of growth much faster than that of China (up 39.3% from 987 million to 1.375 billion), its GDP (= per capita GDP x population) did not grow as much as China's. This resulted in the GDP gap between the two countries widening from 1.6 times to 5.3 times over this period. While India is expected to become the world's most populous country, overtaking China at some point in the future, China is one step ahead of India in becoming an economic superpower. With India's real GDP growth rate surpassing that of China in 2015, hope is rising that India may become a new engine for the world economy, but for some time to come the driving force of India will be limited because of its still low GDP.

The power shift from Japan to China in East Asia has also been remarkable. China's GDP was only 27.9% of Japan's in 1980, but it surpassed Japan in 2009 to become the second largest in the world after the United States. The gap in GDP between the two countries widened since to 2.7 times in 2015 due to the weaker yen and the stronger yuan, in addition to the gap in their growth rates. China's per capita GDP also went from being only 3.3% of Japan's in 1980 to 24.6% in 2015. Consequently, Japan's share of GDP of the entire East Asian region (Japan, NIEs, ASEAN4, and China) fell from its peak at 74.1% in 1987 to 21.2% in 2015, while China's share rose from the bottom at 8.3% in 1994 to 56.5% in 2015 (Figure 3). Thanks to the rise of China, the GDP of East Asia has surpassed those of the United States and the European Union (EU) (Table 2).

Table 2: GDP of East Asia Surpassing Those of the United States and the EU
1980 2000 2015
United States GDP (billion dollars) 2,862.5 10,284.8 17,947.0
Share of the world GDP (%) 25.8 30.9 24.5
EU GDP (billion dollars) 3,755.4 8,829.6 16,220.4
Share of the world GDP (%) 33.8 26.5 22.2
East Asia GDP (billion dollars) 1,733.5 7,588.0 19,451.6
Share of the world GDP (%) 15.6 22.8 26.6
Note: The EU covers the current 28 member countries at all points in time. East Asia refers to Japan, China, NIEs (South Korea, Taiwan, Hong Kong, and Singapore), and ASEAN4 (Indonesia, Malaysia, the Philippines and Thailand).
Source: Compiled by the author based on IMF, World Economic Outlook Database, April 2016.

Although China's GDP is now the second largest in the world after the United States, its per capita GDP has yet to exceed the level of a middle-income country. People have started to wonder when China's GDP will surpass that of the United States to become the world's largest, and when its per capita GDP will reach the level of a developed country.

In 1980, China's GDP was only 10.6% and its per capita GDP was only 2.4% of that of the United States, but rose to 61.2% and 14.3%, respectively, by 2015 (Note 3). The real GDP growth rate of China is expected to be much higher than that of the United States in the years ahead. With the yuan expected to appreciate moderately against the dollar, reflecting an improvement in the international competitiveness of Chinese products, the GDP gap between China and the United States will narrow further. China's GDP is likely to become the world largest, surpassing that of the United States, in about 10 years. However, even when that day finally comes, China's per capita GDP will remain less than one-fourth of that of the United States given the difference in population. It will take much longer time for China's per capita GDP to reach the level of a developed country.

The original text in Japanese was posted on July 7, 2016.

Footnote(s)
1. ^ All of the GDP and population data of the countries used in this article are based on the IMF, World Economic Outlook Database (April 2016). While this database covers almost all countries and regions in 2015, in regard to data for past years, the number of uncovered countries and regions increases the further back one goes. Therefore, when examining data from the 1980s, the number of comparable countries and regions decreases, and the GDP and population of the "world" that represent the sums of all the covered countries and regions are more likely to be underestimated.
2. ^ The international comparison of economic sizes is generally conducted by converting nominal GDP (in local currency terms) of the countries concerned to dollars (using market exchange rates). Given that nominal GDP can be divided into real GDP and the GDP deflator that shows changes in prices, GDP in dollar terms changes in proportion to (1) real GDP growth rate, (2) the rate of increase in the deflator, and (3) the rate of change in the exchange rate.
3. ^ Although the GDP growth rate of China has been much higher than that of the United States since the end of the 1970s, when China shifted to reform and open-door policies, the gap in GDP between China and the United States continued to widen until 1994 because China repeatedly devalued the yuan against the dollar. It was only since 1995, when the devaluation of the yuan came to an end, that China's GDP began to increase relative to that of the United States. In particular, the GDP gap between China and the United States narrowed dramatically from 2005 to 2014, a period characterized by a sharp appreciation of the yuan against the dollar.
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