The nominal gap grew because the US had 6.5% inflation and RMB depreciated ~5%. That's the only reason and these are hardly under China's control unless they artificially pump the currency. If you take a look at any other country that did not follow zero COVID, they also "shrank" relative to the US because, again, strong dollar and inflation. Real GDP gap keeps shrinking.
Chinese Economics Thread
- Thread starter Norfolk
- Start date
First, there was PPP GDP and non-PPP GDP. Now there are Real and Nominal GDP.
What next?
Vibe GDP?
Nominal GDP is "non-PPP GDP", i.e. just country's GDP converted to USD. Real GDP is inflation-adjusted and uses some fixed conversion ratio (e.g. often 1990/2011 USD value) for all years. PPP metric is more suitable for per-capita metrics imo and even then it is not always directly comparable.
Simply put, if the US was $23.315 trln in 2021 and China $17.81 trln, then they grew by $489 billion (2.1% of $23) and $534 billion (3% of $18) respectively. That's the real growth because GDP growth is reported in inflation-adjusted manner and we used a fixed conversion ratio (2021 USD-RMB avg). Nominal growth for the US is 8.6% because of 6.5% inflation. For nominal Chinese GDP you should take the total GDP reported in RMB for 2022 then convert using the average ratio.
PiSigma
"the engineer"
Truth. Duisburg is a shit hole, I visited, my cousin lives there.
FriedRiceNSpice
Captain
No, clearly different writing styles. Also SleepyStudent was unable to present arguments with logic and data.
GDP is a sum of all goods and services produced/used in a country. Before you account for local inflation, you will have a nominal GDP which you can then use to calculate real GDP.
For example, a dozen eggs might cost 15$ in USA but they defintely don't cost 15$ in China. If you forget to count inflation, you'd be calculating gdp for an alternate reality where eggs cost 15$ in China.
So it is of the greatest importance that inflation is considered, because otherwise you will get a whimsical result more based on the current level of inflationary pressure than anything else.
Which is why if I'm a multinational business in the egg industry, I'm going for the American market first. Nominal GDP matters because it gives you an idea of the market size for multinationals. It's pretty useless for estimating standard of living or military industrial power, but it does have its uses.
All the big pharma companies invest in the US and develop drugs for Americans because they pay so much more money for the same drugs that cost much less in other areas and even worse, Americans get poorer healthcare outcomes from it. Once China has the largest nominal GDP, even more international investors are going to focus on China rather than the US
If the market is mostly in unexportable and expensive services like medical bills, lawsuits and university loans, wouldn't the downward pressure on consumption from high service prices mean lower sales volume though?
Like if you had 1k per month in student loans or medical bills for 10 years you can't buy TVs, go on vacation or eat at restaurants as much.
Most of GDP activity is not exportable and are only useful in the context of the country itself. So aggregate nominal GDP still tells you nearly or even nothing at all.
But nominal GDP in individual markets can work like you describe. So if certain markets that have many exporters see China have a higher nominal share, that will cause more potential investment.
Not if salaries go up enough. You end up with an economy with extremely inflated prices which works normally for everyone inside but appears expensive for visitors. This mismatch should eventually be balanced by exchange rates, but those are affected by many non economical factors like perceived safety. So the USD remains overvalued for now compared with most currencies. If China really wanted to damage the USD it would offer a safe and highly convertible asset that can replace treasuries which many investors hold as "cash"