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Accurate Growth Trajectories, No Illusions

Feb 20, 2022
  • Zhang Yongjun

    Deputy Chief Economist, China Center for International Economic Exchanges

In mid- to late-January, authorities in China and the U.S. released their respective Q4 and whole-year GDP statistics, having drawn close scrutiny from domestic and international analysts and watchers. A widely held reading is that while the Chinese economy slowed significantly in Q4 2021, the U.S. economy markedly overshot expectations in the same period. Hence the conclusion that the U.S. economy is in a better shape than China’s. But I beg to differ.

On the surface, it seems that the U.S. economic growth rate outpaced China. According to the Bureau of Statistics of China, the Chinese economy grew 4 percent year-on-year in Q4 2021. The data released by the U.S. Department of Commerce’s Bureau of Economic Analysis suggests a GDP growth of 5.5 percent year-on-year in Q4 2021. The comparison seemingly shows that the U.S. economy is growing faster than China in Q4.

But we should not disregard the fact that in 2020 and 2021, both economies saw major fluctuations in their aggregate economy and a substantial contraction in quarterly economic growth. Moreover, the two economies diverge in terms of phase of recovery.

Therefore, it makes more sense to examine their growth using Q4 2019 as the baseline, with 2019 to 2021 as a two-year duration, an approach that could yield a better portrayal of the growth trajectory. Using this framework, the U.S. Q4 growth from 2020 to 2021 averaged 1.6 percent, while China’s average stood at 5.2 percent, leading the U.S. by a wide margin. A key contributor was that the U.S. economy had just started to rebound in Q4 2020, and the 2020 quarterly reading, which was 2.3 percent lower than the previous year, compared with 6.4 percent growth of the Chinese economy in the same period.

Second, the quarter-on-quarter GDP growth rates of China and the U.S. in Q4 2021 are relatively close, with the growth in the U.S. primarily driven by restocking activities. The quarter-on-quarter GDP growth of China in the third and fourth quarters of 2021 were 0.7 percent and 1.6 percent, respectively, while those of the U.S. read 0.6 percent and 1.7 percent. Because of the different statistical calculation pattern and data presentation, Chinese authorities released a quarterly growth rate of GDP, while the U.S. published the quarter-on-quarter seasonally adjusted annual rate, known as QoQ SAAR, which makes U.S. data appear higher.

Further number crunching shows that the higher U.S. growth in the Q4 2021 was in large part due to inventory restocking. If we take the 2012 constant price GDP as the baseline, U.S. SAAR GDP in Q4 2021 increased by $327.1 billion, of which the inventories alone amounted to $240.3 billion, contributing 73.5 percent to GDP growth.

The inventory increment as a percentage of GDP in Q4 2021 was slightly above 0.9 percent, while the arithmetic average of inventory increment as a percentage of U.S. GDP throughout this century is 0.2 percent. If the quarterly inventory increment as a percentage of GDP for Q4 2021 is on par with the 0.2 percent level, then GDP growth for that quarter would be only 0.7 percent year-on-year, which translates into an annual rate of 2.9 percent, just slightly higher than the normal growth rate. And it would be significantly lower than China’s QoQ growth rate.


The U.S. economy registered a growth rate of 5.7 percent in 2021, but it came at a high cost. Historically, annual U.S. GDP growth of 5.7 percent is rarely seen in half a century — it’s a record high since 1985. It should be noted, however, that the U.S. economy outperformed in 2021 against a negative 3.4 percent growth rate in 2020. But the two-year average growth rate is only 1 percent, still below the long-term U.S. average economic growth rate.

In particular, it should be noted that the U.S. has paid a hefty price to reverse the 2020 decline and achieve economic growth in 2021:

First, the U.S. government has run massive deficits for two consecutive years. According to a joint report issued by the U.S. Treasury Department and the Office of Administration and Budget, the deficits for fiscal years 2020 and 2021 are as high as $3.13 trillion and $2.77 trillion, setting new records in U.S. history and resulting in deficit ratios of 15.2 percent and 12.4 percent, respectively.

At the same time, due to the QE policy of the Federal Reserve, the broad money supply (M2) increased by $6.3 trillion in 2020-21, while the U.S. M2 supply was $15.4 trillion at the end of 2019, highlighting the substantial ballooning of the money supply over the past two years. The massive fiscal overspending and money printing led to severe inflation in 2021. According to the U.S. Bureau of Labor Statistics, the U.S. Consumer Price Index rose by 7.0 percent year-on-year in December, the highest monthly increase since 1982. By contrast, China’s CPI rose only 0.9 percent in 2021, and thus managed to deliver high growth in tandem with low inflation.

Finally, we should not be overly optimistic of U.S. economic prospects in 2022. A few days ago, in the latest World Economic Outlook, the International Monetary Fund forecast that the U.S. economy will grow by 4 percent in 2022 and China by 4.8 percent. I think this is too optimistic for the U.S. and too pessimistic for China.

As mentioned above, the U.S. achieved higher economic growth in 2021 on the back of a highly stimulative fiscal policy and excessively accommodative monetary policy. The U.S. will significantly cut its fiscal deficit in 2022 to tame inflation, and the Federal Reserve has indicated clearly its policy path of rate hikes and a balance sheet runoff.

As the U.S. moderates the strength of its stimulus, coupled with a surge in the Omicron variant of the coronavirus since the end of 2021, consumer demand will be suppressed and supply chains disrupted, creating a drag on U.S. economic growth. The Conference Board, a leading U.S. economic analyst and research firm, projected U.S. GDP growth of 3.5 percent in January, which is significantly lower than the IMF’s forecast.

In China, due to solid headway in the fight against the pandemic, the economy managed to get back on firmer ground quickly and has transitioned from fluctuations to greater stability. There is still headroom for adjustment of both fiscal and monetary policy, as the Chinese economy is expected to register a growth rate of over 5 percent this year.

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