China's share of the global economy is falling by the most since Mao Zedong, and the historic turn could 'reorder the world'


Filip De Mott
Fri, December 29, 2023 

Mao Zedong.Getty Images

China's share of world GDP is on pace to shrink 1.4 percentage points over two years, Ruchir Sharma wrote in the Financial Times.


It's the largest decline since the 1960s and 1970s, when Mao Zedong oversaw a weak economy.


"In a historic turn, China's rise as an economic superpower is reversing," Sharma said.

The Chinese economy's decades-long run of tremendous growth has finally found its end, Ruchir Sharma wrote in the Financial Times in November.

Now, the world's second-largest economy accounts for a smaller share of global GDP.

"In a historic turn, China's rise as an economic superpower is reversing. The biggest global story of the past half century may be over," the Rockefeller International chairman said.

In nominal dollar terms — which Sharma argues is the most accurate measure of an economy's relative strength — China's share of world GDP began slipping in 2022 as strict zero-COVID measures remained in place for most of the year.

Despite expectations for a blowout rebound, China's share will fall further in 2023, hitting 17%. That puts China on pace for a two-year drop of 1.4 percentage points, a slide not seen since the 1960s and 1970s, when Mao Zedong presided over a weak economy, he added.

Back then, Mao's disastrous "Great Leap Forward" was still wreaking havoc on the economy. Not until new leadership pivoted to market-based reforms in the late 1970s did the economy start to turn around.

In 1990, China's share of the global economy was less than 2%, but by 2021 it had soared to 18.4%. Such a rapid increase had never been seen before, Sharma noted.

But with its current slide, China will account for none of the growth of global GDP over the past two years, estimated at a total increase of $113 trillion.

"China's decline could reorder the world," Sharma said. "Since the 1990s, the country's share of global GDP grew mainly at the expense of Europe and Japan, which have seen their shares hold more or less steady over the past two years. The gap left by China has been filled mainly by the US and by other emerging nations."

India, Indonesia, Mexico, Brazil and Poland will account for half the emerging-market gains, he added later, calling that "a striking sign of possible power shifts to come."

For its part, Beijing has maintained a 5% annual growth target and expects to meet it this year. The forecast is supported by the International Monetary Fund, which sees 5.4% growth for 2023.

But Sharma dismisses the use of real GDP growth as a metric, saying it leaves too much room for Chinese authorities to tweak the numbers to fit their outlook and obscure a decline. In nominal dollar terms, the country's GDP will fall this year for the first time since 1994, he said.

Among key factors for the decline are growing government intervention in China's businesses, the ongoing debt turmoil, slower productivity, fewer workers, and the loss of foreign investors.

Still, Chinese President Xi Jinping has remained optimistic and hinted recently at a policy pivot while meeting with US President Joe Biden in November.

"But almost no matter what Xi does, his nation's share in the global economy is likely to decline for the foreseeable future," Sharma concluded. "It's a post-China world now."