China’s economy is now a staggering 22% bigger than America’s, but for differing reasons, neither nation wants to acknowledge this fact. And why the Europeans don’t (want to) get a bigger slice of the growing cake.

In a December 2023 article titled “Sorry America, China has a bigger economy than you” (see screenshot above), the Financial Times notes that China’s economy is bigger than America’s in real terms, or in the only terms that matter, purchasing power parity, based on the latest IMF data.

Its economy had already exceeded the size of America’s during the time President Trump tried to “make America great again.” Not even Trump’s and his successor Biden’s all-out economic war against China, which ranges from cotton and tomatoes to services and high-tech products, has been able to halt, let alone reverse, the ever-growing inequality. And now the Chinese economy is a remarkable 22% larger.

In 2010, China surpassed the United States in the generation of electricity. During the period from 2016 – 2022, the Chinese economy was supposedly making no progress compared with the U.S. but in reality, throughout that time, it saw a 45% increase in power generation, while the US saw essentially stagnant growth. In view of the proven positive correlation between energy production and economic growth, this is a further indication of the increasing discrepancies between the two economies.

Read my related article: In China, the Communist Party is saving capitalism. — One of countless pieces of information that the media withholds or misrepresents.

The focus of every recent item in the mainstream Western media in China was its economic issues. As things stand, China’s economy is still growing—and expanding more quickly than that of the US and the rest of the West. As with any economy, China undoubtedly faces its fair share of challenges, but the balance of economic power is still moving in its favor.

Neither China nor the U.S. acknowledge this shift in global economic power. The author of the article in Britain’s leading economic and financial newspaper wrote: “Coming from the United Kingdom which lost its economic gold status in the late 19^th century which still has some delusions of grandeur I can understand American denialism. For China, it is also easier to avoid responsibilities for climate change, debt relief, and other global goods” if it still can keep a lesser status. 

He concludes that false comparisons lead to flawed decisions which ultimately will be made at the expense of America (and the rest of the West).

It is the rise of China over the last 30 years that has changed the global economic landscape and captivated other economies. The US-led collective West cannot reverse this, no matter how many resources it wastes on efforts to do so.

Gordon G. Chang is often portrayed in the American mainstream media as a preeminent “expert” on China. China must rejoice at his lack of judgment, for it confirms Sun Tzu’s strategic principle of pretending to be inferior (卑則驕之) or allowing others to pretend to be inferior while fueling the hubris of US adversaries at their expense. (Screenshot New York Times)

The worst is still to come for the misguided Americans who have spent decades being brainwashed into thinking they live in God’s own country, the best country in the world, and that they and their nation are unique.

Given that Chinese per capita income is currently far lower than that of Americans, the country’s economy has enormous unrealized potential to grow to be far larger than America’s.

The average disposable income of the Chinese in 2022 was 36,883 yuan (USD 5,153), compared to the average disposable income of Americans of USD 15,126, i.e. only nominally, not in real terms, already around three times as high.

Apart from the considerable risks arising from the high level of debt and other structural weaknesses in the US economy, it is largely saturated. China already has the world’s largest middle class, which, as in India, will continue to grow strongly. In addition, the income of a Chinese middle-class family is still far below the average of an American middle-class family, even if the trend there is going in the opposite direction, i.e. downwards.

So unlike the US, China’s economy can still take a big leap forward, or rather, upward, thanks in part to its solid public finances and the lack of need to finance expensive wars and maintain 800 military bases around the world. And in order to get a grip on and solve the real estate crisis, which it is tackling proactively, the Chinese government does not have to fire up the inflationary money printing presses, but can dig deep into its pockets.

Let’s stay with the real estate crisis for a moment. The real estate bubble and the associated shadow banking system as well as ever more “sanctions” against their technology sector have taught the Chinese a lesson: Leave the real estate sector behind, go full throttle into the technologies of the future. Propping up the real estate market forever is a losing battle. In other words, it drags down the economy as a whole. If you keep propping up the real estate market, it’s almost guaranteed that more bubbles will form and there will be a bigger crash because people are speculating; it’s just human nature.

Instead of investing in real estate, which is a zombie economy, China is now investing in the future. Real estate lending is in sharp decline, as can be seen in this chart. The real estate crisis has been used by China as an opportunity to destroy the old economy and replace it with a more sustainable, future-oriented economy. (Source: People’s Bank of China)Bloomberg News confirmed this when they reported on January 8, 2024 about “China’s shift to high value-added manufacturing” (to which the West would once again respond with an intensified trade war).

It is understandable that the Americans are struggling with the loss of their global dominance and are hardly able or willing to adapt.

However, it is difficult to understand why the hardliners in Brussels and Berlin are planning an all-out trade war with China. Because this is about ideology and vassalage to the US, to which the common sense of the people of Europe is being subordinated and their prosperity blindly sacrificed.

Part of the EU’s trade war is the import ban on vehicles from China, which it is trying to enforce. To this end, Brussels has launched an anti-dumping investigation into Chinese electric vehicles. As expected, this was welcomed by the German Minister for Economic Affairs. The Middle Kingdom exports battery-powered vehicles worth 12.7 billion US dollars to the EU.

China responded with an anti-dumping investigation in a much smaller market segment, namely spirits. The country produces its own brandy while importing 1.6 billion US dollars worth of this alcoholic beverage from the EU. Instead of using bigger, comparable weapons, China has so far been relatively restrained in making it clear that a trade war is not in Europe’s interests.

Economists know that large countries such as India, China or the USA have sufficiently large domestic markets and are therefore not necessarily dependent on exports. Smaller economies such as Germany, France or Italy, on the other hand, are doomed to export in order to maintain employment and prosperity. If the EU leadership now ensures that Europe turns away from China (for which the euphemistic term “derisking” has been chosen), this is likely to harm Europe first and foremost: The displacement of Chinese products will drive up prices for European consumers (a Chinese electric car, for example, costs only half as much as a European one), and China, for its part, will pursue a “derisking” policy and import fewer and fewer European products, forcing European companies to forego the world’s largest market and further driving progressive deindustrialization, resulting in a significant loss of prosperity for Europeans. This will hardly hurt China as it already does the lion’s share of its trade with the global south or the global majority. It will only accelerate the trend of shifting its own economy even more towards qualitative growth, and consumers will buy more and more domestically produced, high-quality and inexpensive products.

What do Asians think of “derisking”, which is practiced in Europe with almost the same religious fervor as in the United States?

Let’s take Vietnam as an example: the Vietnamese have had a lot of trouble with their big neighbors in their history, but China is now their biggest trading partner and the two want to greatly expand their trade and other relations. So there are no signs of “derisking”. 

When I first visited the country thirty years ago, I was amazed at how many young Vietnamese were learning French at the Alliance française and German at the Goethe Institutes in Hanoi, Danang, and Hochiminh City. In the meantime, interest in these two languages has waned considerably, and more and more young Vietnamese are learning Chinese as well as English. This does not mean that the Vietnamese today are less nationalistic and critical of China, but they are simply more pragmatic and not as stupid as the Europeans to allow their prosperity to be destroyed for ideological reasons or in the interests of a foreign power. Of course, this won’t bother the politicians in Berlin and Paris, who are detached from the reality of their citizens.