Beijing’s Big Problem: An Incredible Shrinking Economy

By Jon Emont of The WSJ. Excerpts:

"In dollar terms, China’s gross domestic product, as a share of the global economy, peaked in 2021 at around 18.5%, when it grew to be around three quarters of the size of the U.S. economy."

"Instead China’s share of the pie has decreased, ending 2025 at around 16.5% of the global economy. It is now less than two-thirds the size of the U.S. economy"

The problem is "deflation, which reduces the value of goods in the economy, and a weak yuan has zapped the relative size of China’s economy as measured in dollar terms. So even though China’s economy has been producing more goods than ever, the dollar value of what it makes has been stagnant" 

"Another method, purchasing power parity, shows how much Chinese can purchase at home. According to this yardstick, China’s economy now far exceeds the U.S."

"A different measure is to compare economies using dollars from a fixed point in time, thus eliminating the effects of inflation. By that gauge, China is growing consistently.

But economists often compare the size of economies using present-day dollars because the greenback is the currency of international trade and a measure of actual buying power globally. That makes China’s shrinking share of the global economy worrying for global businesses, whose investments in China bring home less in dollar terms now."

"China’s challenged economic situation echoes the economic trajectory of Japan, which grew to be nearly three-quarters of the U.S. economy in 1995, but has since fallen to less than 15% of the U.S., as a weak yen and deflation eroded the country’s buying power."