Do you think the economic gap between China and the United States has widened? Wrong! It's actually the impact of exchange rates
You know that by 2023, China's GDP will be only 16 percent of the world's GDP8%, while the United States will account for 245%? Does this mean that China's power is weakening and the United States is growing?
In reality, this comparison is unfair and incorrect. Because the strength of a country depends not only on the size of its economy, but also on its capabilities in other areas, such as science and technology, industry, international influence, etc. From these aspects, China not only did not lose to the United States, but on the contrary, it is at the forefront of the world in many fields.
For example, in terms of science and technology, China has achieved surprising results in areas such as artificial intelligence, 5G, quantum computing, and space flight, and even surpassed the United States in some areas. In terms of industry, China has moved from manufacturing low-end products to high-end products, improving quality and value, and enhancing its competitiveness with other countries. In terms of international influence, China has actively participated in solving global problems and promoted international cooperation such as the AIIB and vaccine aid, which has won praise from many countries.
Therefore, we cannot just look at the size of the economy and assume that China's power has weakened. On the contrary, we should see China's progress and superiority in all aspects, and believe that China's strength is still increasing and improving.
The economic power of China and the United States has a significant impact on the global economic landscape. In 2021, China's total economic output reached 14A staggering figure of 7 trillion yuan, which is 17% of the world's economy and equivalent to 70% of the U.S. economy. This is a brilliant achievement in China's economic development, and it is also the highest point in the comparison of economic strength between China and the United States.
However, from 2022 onwards, the gap in the size of the U.S.-China economy began to widen again. By 2023, China's total economic output will drop to 175 trillion yuan, accounting for 17% of the world's total economy and only 63% of the total U.S. economy. What's going on? Mainly because of changes in exchange rates.
The exchange rate is the amount that one currency is exchanged for another. Changes in exchange rates can affect all aspects of communication between the United States and China.
For example, when the yuan depreciates, what China sells to the United States will be much cheaper, and what the United States will sell to China will be much more expensive, so China sells more and the United States buys less, so China earns more and the United States loses more.
In addition, when the renminbi becomes worthless, investors will exchange the renminbi for yuan, so the yuan will appreciate and the renminbi will depreciate. In addition, when the renminbi depreciates, Chinese tourists are reluctant to travel to the United States, and American tourists are willing to travel to China, which will increase China's tourism revenue and reduce China's tourism spending, thereby increasing China's tourism deficit and reducing the tourism surplus of the United States.
In 2022 and 2023, the RMB exchange rate against the yuan fell sharply, from 65 or so down to 7 in 20235 or so. This means that China's economy is smaller in yuan terms. On the other hand, the dollar has remained relatively stable, and even appreciated slightly against the currencies of other countries, which has allowed the total US economy to maintain growth in dollar terms. Therefore, the rise and fall of the exchange rate is the main reason for the widening gap between the size of the Chinese and American economies.
Of course, this does not mean that China's economic power has actually weakened, it is just that the conversion form is different. If calculated in purchasing power parity terms, China's economy still surpasses that of the United States, reaching 241 trillion yuan, or 18% of the world's total economy.
The economic level of different countries cannot be compared by exchange rates alone. This is because the exchange rate can only reflect the value of a country's currency in the international market, not the value of a country's currency that can be purchased in the country. Therefore, we have to use a method called purchasing power parity (PPP) to convert the real value of different countries' currencies. Purchasing power parity is the conversion of the value of money into the price level of each country, so that we can know the amount of goods and services that a country's currency can buy in its own country, that is, the actual production and consumption capacity of a country.
In 2017, for example, China's GDP was 8,2075.4 billion yuan, according to the year 6The exchange rate of 76 is converted into yuan, which is about 12141.3 billion yuan, less than the United States in 19485.3 billion yuan. But if converted in purchasing power parity terms, China's GDP is 1963$5.3 billion, higher than the 1939 in the United States0.6 billion. This shows that the purchasing power of China's currency in its own country is greater than that of the U.S. currency in its own country, that is, China's actual production and consumption capacity is stronger than that of the United States. As you can imagine, if you take 100 yuan and 100 yuan to buy things in China and the United States, respectively, you will find that you can buy much more things in China than in the United States.
Of course, PPP is not a perfect approach; It has some limitations and assumptions. For example, it assumes that goods and services in all countries are of the same quality and quantity, which is difficult to achieve in practice. It also ignores some other factors that affect the level of the economy, such as per capita income, industrial structure, scientific and technological innovation, and balance. These factors reflect the level and potential of a country's economic development, and also affect a country's competitiveness and international status. Therefore, we should not only evaluate the difference in the size of the Chinese and American economies from the perspective of purchasing power parity, but also comprehensively analyze the economic conditions and development trends of the two countries in order to more accurately evaluate the comparison of the economic strength of China and the United States.
Why yuan** and yuan**? This is also related to interest rates in China and the United States.
Interest rates are the cost of borrowing funds, which vary from country to country and affect the flow of funds and exchange rates. In general, countries with high interest rates, capital inflows, currency appreciation; Countries with low interest rates, capital outflows, currency depreciation.
In the past two years, in response to the epidemic and economic crisis, the United States has raised interest rates several times, making interest rates higher in the United States than in China. This has widened the interest rate differential between China and the United States, which means that Chinese money will go to the United States in search of higher yields. As a result, the renminbi depreciates relative and the renminbi appreciates relatively. As a result, the renminbi is undervalued, and the gap between the size of the U.S.-China economy has widened.
China and the United States are the world's largest economies, and the competition between the two countries not only concerns the interests of the two countries, but also affects the nerves of the world's major capital groups. This is not a simple dispute between countries, but a struggle for comprehensive national strength involving many aspects.
In this competition, the size of the economy is only part of the equation, and aspects such as technology, innovation, talent and culture are equally important. We must not only see the economic gap between China and the United States, but also see the differences and advantages in other aspects. The size of the economy can reflect the strength of a country, but it is not the key to winning or losing. If China wants to win this competition, it must strengthen scientific and technological innovation, cultivate high-quality talents, and improve the country's soft power.