China GDP: as IMF lowers economic forecasts, is there still a window of opportunity to surpass the US?

China's ambitious objective of surpassing the United States to become the world's largest economy is increasingly uncertain. This is due to the stark differences in growth rates and economic outlooks between the two nations. The International Monetary Fund (IMF) recently lowered its economic forecasts for China, further widening the gap. The IMF reduced China's expected growth for 2023 from 5. 2 per cent to 5 per cent. It also revised down the forecast for China's economic growth from 4. 8 to 4. 2 per cent for the following year. Conversely, the IMF revised up its estimates for the US economy in 2023 from 1. 8 to 2. 1 per cent and from 1 to 1. 5 per cent for 2024. China is currently grappling with a real estate crisis and weakening confidence in its economy. The IMF report highlighted that among emerging markets and developing economies, the consumption shortfall is particularly large in China. This is due to the strict restrictions on mobility during the Covid-19 crisis. Wang Yongli, general manager at China International Futures, attributed the divergence in economic growth to different economic structures and cycles. He warned that the coronavirus pandemic, US-led containment, and local government debt have further complicated challenges for China, leading to weak investment and exports. However, the financial standing of American families and businesses emerged from the pandemic largely unscathed. Consumption also remained strong due to the influx of capital triggered by the Federal Reserve's interest rate increases. Despite the challenges, Wang Yongli sees a window of opportunity for China. He suggested that the government should roll out measures to boost consumption and refrain from interfering with the economy. He also emphasized the importance of upholding law and equality to stimulate further growth. Wang Huiyao, founder of the Centre for China and Globalisation, argued that China's economic fundamentals remained solid. He attributed the difference in outlooks to exchange rate issues. The yuan has depreciated by over 3 per cent this year, while the onshore spot price has fallen by 5 per cent. However, he believes that as long as China can maintain an annualised growth rate of 4-5 per cent, it still stands a decent chance to surpass the US by 2035. China's GDP was 64. 5 per cent the size of the US' in the first half of 2023, slipping to the lowest level since 2020. The figure hit a record high of 77. 3 per cent in 2021, when China's economic growth exceeded 8 per cent and the US grew by 5. 7 per cent. However, it fell to 70. 7 per cent last year. The changing perception of China's development trajectory amid its rivalry with the US will have far-reaching implications. US research firm Rhodium Group suggested that China could not catch up with the US in terms of GDP this century, blaming its many stalled reforms. The group highlighted that the relative allure of liberal markets versus China's 'state capitalism' approach will shift in ways that require policymaker and business leader attention.