China will barely grow in dollar terms this year

President Xi has reportedly told officials to ensure that China’s real GDP growth exceeds that of the US this year. This is likely to happen on paper. The published data usually confirm that growth targets have been met and the official target this year is “about 5½%” compared with US growth that’s likely to be in the region of 2.4%. But nominal GDP growth, which suffers less from manipulation, may tell a different story. Virus disruption and weaker exports pose substantial headwinds to China’s economy. Inflation will be far lower than in the US. As a result, we doubt that China’s nominal growth will come close to the 8% that we expect for the US. And if the renminbi weakens as much as we anticipate then China’s GDP may rise less than 2% in dollar terms this year. In other words, China’s economy is likely to fall back in dollar terms relative to the US in 2022. This should serve as a reminder that China’s rise to becoming the world’s largest economy is not assured. We don’t think that it will happen.