China Poised To Take The Economic Number One Spot…Or Are They?

This morning, The Wall Street Journal is reporting that China’s economy expanded by 2.3% in 2020 to become the only major world economy to grow during a year when almost all economies retracted thanks to the global pandemic.

However, as with most data that comes out of China, you have to do a deep dive to see what is really there. A new IMF report points out that most of China’s growth has not been the result not of productivity growth, but government spending,

That is amplifying a trend of declining growth in productivity—or output per worker and unit of capital—in the world’s second-largest economy, according to a new report by the International Monetary Fund. By the measure of average productivity across sectors, a gauge of overall economic efficiency, China’s economy is only 30% as productive as the world’s best-performing economies like the U.S., Japan or Germany, the report shows.

China’s population is no longer growing, in fact, it is projected to shrink. Without productivity gains, the economy will not continue to grow. Government spending can only last so long. China may, at some point, eclipse the US economy, but without productivity growth it won’t last long.