An Update on China’s Economic Strength

Dr. Robert P. Murphy
December 13, 2023
China, Economics, Macroeconomics, Inflation
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Back in 2010, I was at a Mises Institute event in Auburn where they gave an award to investor Jim Rogers. (Besides his affinity for Austrian economics, Rogers is originally from Demopolis, Alabama.) Rogers had a few years earlier sold his New York City mansion to move to Singapore. He explained to us that he wanted his daughters to be fluent in Mandarin and grow up in Asia.

As quoted on his Wikipedia page, Rogers has said, “If you were smart in 1807, you moved to London, if you were smart in 1907, you moved to New York City, and if you are smart in 2007, you move to Asia.” That dovetails with what I remember him telling us in Alabama, where he argued that the 19th century belonged to the British empire, and the 20th to the Americans, but the 21st century would be Chinese.

Rogers’ words (and actions) resonated with me at the time, and they still do. I realize there is a sampling bias involved, but nonetheless, whenever I go to a Chinese restaurant and see young kids working the cash register and then going to a side table to do their homework, I think their culture is better poised to command the global economy in the coming decades. If the reader thinks focusing on immigrant family businesses is misleading, we can look at national statistics: In 2019, the gross national savings rate in China was 44 percent, while in the US, it was only 18 percent.

In this post, I’ll explain two trends that support Jim Rogers’ prediction about the gradual eclipse of the US and the rise of China.

Total Economic Output

The most obvious metric of a country’s economic strength is Gross Domestic Product (GDP). So, how does the US compare to China in this dimension?

The problem here is that output is measured in different currencies (the dollar and the renminbi), and so to compare American and Chinese GDP, we need to use a conversion factor to compare American and Chinese GDP. There are two popular methods, but unfortunately they give significantly different results in this case.

If we convert yuan to USD according to official exchange rates, then in 2022, the US had the largest economy in the world at $25.5 trillion in output, while China was second with the equivalent of $18.0 trillion — meaning the US still had a 42 percent edge.

On the other hand, many economists think that “purchasing power parity” (PPP) is a better way to make these cross-country comparisons. Here, the idea is to ask how many USD it would take to buy a basket of consumer goods and services in the United States and then to ask how many yuan it would take to buy the same basket in China. If we use this method to convert yuan to USD, then in 2022, the US still had (of course) $25.5 trillion in nominal output, whereas the Chinese economy came in at 30.3 trillion — making China the largest economy in the world. In fact, using the PPP method, China overtook the US in economic output way back in 2013!

Which currency conversion is more appropriate? Well, in a world with no barriers to trade (including transportation costs), the two approaches theoretically would be identical because if there were a divergence, it would imply an arbitrage opportunity for importers in either the US or China (depending on which way the divergence went). However, in the real world, there are barriers to international trade, especially when it comes to China. In particular, American hawks who accuse the Chinese government of intentionally undervaluing its currency (in order to promote exports) should realize that if this is true, then true Chinese output is much higher than the official exchange rate method indicates.

Gold Reserves

According to official reports, China has been reducing its enormous stockpile of US Treasuries, down from $1,033 billion in January 2022 to $859 billion in January 2023. (I should note that this analyst argues that China’s foreign custodians picked up the slack.)

Yet, if China is reducing its reliance on dollar-denominated assets, it has been increasing its holdings of physical gold. The table below shows US and Chinese official gold reserves, as reported by the IMF and compiled by the World Gold Council.

Official Gold Reserves (millions of tonnes) in Select Years

As the table indicates, the US is still the dominant force in gold reserves — at least if we can trust the official figures. (For those readers who aren’t aware, there is a lively literature speculating that the US government doesn’t actually hold as much physical gold as it claims, as its stockpiles have been allegedly sold into the market to suppress the world price of gold.)

Yet look at the trend: In 2000, China’s official gold reserves were only 5 percent of the US total, but by 2022 they had grown to 25 percent. Or another way of looking at it: From 2000 to 2022, US gold reserves actually fell slightly, while China’s quintupled.


There are demographic and other structural problems with the Chinese economy, including the fact that their government is officially run by commies. But if I had to guess, I think that by 2040 it will be clear that Jim Rogers made the right call. I’m not saying China will be the lone superpower, but rather that the US will be dethroned and the globe will be multipolar.

NOTE: This article was released 24 hours earlier on the IBC Infinite Banking Users Group on Facebook.

Dr. Robert P. Murphy is the Chief Economist at infineo, bridging together Whole Life insurance policies and digital blockchain-based issuance.

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