Will China Surpass the United States? Structural Obstacles and an Incomplete Market
Transition Will Hinder China’s Advancement
Battling for global supremacy, both China and the United States have made immense economic
advancements. With China’s unprecedented economic growth, over the last three decades, many
anticipate it could overtake the United States. However, several current and impending obstacles
are causing China’s economy to stagnate, including weak household consumption, private-sector
investment, and a large age demographic imbalance. I argue that China’s structural roadblocks
and an incomplete market transition will thwart China’s ambitions to surpass the United States
economically.
According to data from the World Bank compiled by Reuters, China’s GDP-per-capita remains
above the middle-income average but began to stagnate with 5% growth in the 3rd quarter of
2023 compared to 7% last decade, due to weak household consumption and private-sector
property investment, stemming from poor structural competence. The country is overly reliant on
investment, with a household consumption fraction of GDP that is lower than the global average.
High consumption keeps the US near the top for GDP-per-capita and China’s overreliance on
private-sector investment causes disparity in their GDP allocation and stagnates their growth.
Moreover, in 2022, mainland China’s population dropped by 850,000 representing a decrease for
the first time in 60 years according to Oxford Economics. This, along with a shrinking labour
supply due to an ageing population causes setbacks. This market demographic transition leads to
thinning of the social security net, keeping saving rates high, and the market becoming less
consumer-centric. Labour supply shortages affect businesses’ total productivity and their ability
to produce results for investors, inevitably lowering ROI and deterring investors from viewing
China as a viable investment location. As mentioned previously, an overreliance on investment to
boost GDP and decreasing promise for this sector will likely lead to economic slowdown.
The Economic Studies Group presents a possible counter suggesting the sheer size of China’s
current demographic is enough to overcome the middle-income trap hurdle and propel to highincome status if they were to urbanize the rural areas which have a lower GDP-per-capita. This
may be possible, but I believe China has reached a point of diminishing returns in an economy of
scale, meaning it has peaked in growth and no longer possesses the resources nor the flexibility
to develop other avenues for growth.
The structural challenge of being over-reliant on investments over household consumption as
well as a lack of planning for a transitional demographic shift, point to an economy that is more
likely to struggle rather than thrive in the near future. Ultimately, does China have a chance to
overtake America as the leading economic powerhouse? A turn of fortune might pivot its hopes,
but now it seems to be heading for a decline instead. China might just need another era of
miracle growth.
(449 words)
References
Gao, L., Zhang, E., & Yao, K. (2023, July 18). Will China ever get rich? A new era of much
slower growth dawns. Reuters. https://www.reuters.com/world/china/will-china-ever-getrich-new-era-much-slower-growth-dawns-2023-07-18/
Sato, Y. (2023, January 18). China’s demographic shift poses tough economic and fiscal
challenges. Oxford Economics. https://www.oxfordeconomics.com/resource/chinasdemographic-shift-poses-tough-economic-and-fiscalchallenges/#:~:text=China%20is%20undergoing%20a%20demographic,first%20decline%
20in%2060%20years.
Utzinger, R. (2022). Will China Surpass the U.S. to Become the Number One Economic
Power? Economic Studies Group. https://esg.gc.cuny.edu/2022/07/04/will-china-surpassthe-u-s-to-become-the-number-one-economic-power/
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