Weaker yuan widens economic gap between China and US

China's economy added US$439 billion last year, while US GDP increased by US$590 billion.
China's economy added US$439 billion last year, while US GDP increased by US$590 billion.PHOTO: AGENCE FRANCE-PRESSE

BEIJING • For the first time in almost a decade, China has lost ground in catching up with the United States economy, when output is measured in dollars.

US gross domestic product increased by US$590 billion (S$840 billion) in 2015 from a year earlier, data released on Friday showed.

China's economy, while reporting 6.9 per cent growth for the year, added US$439 billion, as a weaker yuan sapped the value of output gains in US dollar terms, according to data compiled by Bloomberg.

"The US has come back from the financial crisis with robust technology innovation leading the recovery, while China's economy is heading down," said Professor Niu Jun, an international relations professor at Peking University.

"The number itself isn't a specific reason for being either too optimistic or pessimistic, but if China can't successfully reform its economy, the real gap between the two will expand, and it will take longer for China to catch up."

Last year was the first time since 2006 that China made no progress in closing the gap with the world's largest economy.

While the US economy expanded 2.4 per cent for a second straight year, China slowed to the weakest expansion pace in a quarter-century as old growth drivers like heavy industry and exports slow.

As for this year, China's economy is forecast to expand 6.5 per cent in real terms, while the yuan is projected to depreciate to 6.79 against the US dollar, down more than 7 per cent from the average level last year.

"Whether China can catch up to the US in dollar terms is not important, but whether China can sustain its development is," said Mr Xia Le, a Hong Kong-based economist at Banco Bilbao Vizcaya Argentaria SA. "As long as China can expand 5 per cent a year in the next decade, it's only a matter of time until it surpasses the US."

BLOOMBERG

A version of this article appeared in the print edition of The Sunday Times on January 31, 2016, with the headline 'Weaker yuan widens economic gap between China and US'. Print Edition | Subscribe