There are two main reasons for the further widening of the GDP gap between China and the United States this year. First, the high inflation rate in the United States pushed up the GDP figures. Despite the Fed's interest rate hikes, domestic inflation in the United States has fallen back, but it is still at a high level. High inflation has led to Americans having to spend more money on goods, which has pushed up consumer spending and GDP. But it also means that there is a certain amount of moisture in the US GDP data.
Secondly, due to the Fed's continuous interest rate hikes, the US dollar has appreciated, and the exchange rate of the Chinese currency has depreciated. Countries usually use the US dollar as the unit of denomination when comparing GDP, which makes China's RMB-denominated GDP suffer losses when converted to US dollars. Needless to say, this is an unfair way of comparison for our country.
Recently, however, there has been a possibility that the Fed will stop raising interest rates. The successive interest rate hikes have brought some negative effects to the U.S. economy, such as an increase in interest payments on U.S. bonds, rising financing costs for financial institutions, and bank bankruptcies. Therefore, the Fed's rate hike cycle next year is likely to end, and inflation is also expected to fall further.
Although the GDP gap between China and the United States widens in 2023, it is likely to reverse next year. The main reason is that the Fed's interest rate hike cycle may end next year, the inflation rate will continue to fall, and the adverse impact of continuous interest rate hikes on the U.S. economy will lead to a certain suppression of GDP growth in the United States.
First, there is a possibility that the Fed will stop raising interest rates next year. Successive interest rate hikes have caused the scale of U.S. bonds to continue to expand, and interest expenses will also become larger, which may trigger the risk of debt default. This move will have a negative impact on the US economy and the global economy, so the Fed may have no choice but to stop raising interest rates.
Second, successive interest rate hikes have reduced the inflation rate in the United States to a certain extent, but they have also put heavy pressure on U.S. financial institutions to raise financing costs, causing some small and medium-sized banks to declare bankruptcy and collapse. If inflation continues to decline, there is a good chance that the Fed will transition from a rate hike cycle to a rate cut cycle.
It can be seen that next year, the GDP gap between China and the United States is expected to further narrow or even reverse. The strong momentum and potential of China's economic growth will be one of the key factors in narrowing the GDP gap between China and the United States.
China's economic growth has always been the focus of global attention, and many experts have the possibility of China's GDP surpassing that of the United States to become the world's largest economy. However, it is undeniable that the GDP gap between China and the United States is still very large.
From the accounts of those who gave me the opportunity to learn about the United States, and from some of the reports, it is clear that the high inflation rate in the United States has indeed pushed up the GDP figures, but the pressures and adverse effects of the interest rate hike cycle cannot be ignored. At the same time, China is still facing some bottlenecks and challenges in the process of economic development, and it is necessary to further strengthen reform and innovation and improve the quality and efficiency of economic development.
As the Federal Reserve is likely to stop raising interest rates, the GDP gap between China and the United States is expected to further narrow next year, which can be said to provide a rare development opportunity for China. We need to continue to intensify reform and opening up, improve our ability to innovate in science and technology, strengthen talent training, and promote the upgrading and transformation of the economic structure, so as to achieve high-quality economic development.
Against the backdrop of increasingly fierce global economic competition, we should not only be satisfied with catching up with and narrowing the GDP gap between China and the United States, but also actively explore an economic development path with Chinese characteristics based on our own advantages and characteristics. Only in this way can we demonstrate greater strength and influence on the global economic stage.
The road ahead is full of challenges, but we should face them with a positive attitude and seize the opportunities. Only by adhering to the implementation of the innovation-driven strategy, accelerating the adjustment of the economic structure, transformation and upgrading, improving the ability of independent innovation, and promoting the vigorous development of innovation and entrepreneurship activities can we achieve better economic development results. I firmly believe that in the near future, China's economic strength will be further strengthened, and the GDP gap between China and the United States will be further narrowed.