As China’s political elite gather for the country’s annual legislative sessions in March, we examine the broader forces likely to influence policies for the coming year – and how decision-makers will respond to the unpredictable second term of US President Donald Trump. In the first part of this series, Frank Chen surveys the status of the country’s high-octane economic competition with the US. When President Xi Jinping brought China’s most prominent entrepreneurs to Beijing for a symposium on February 17, his message was clear: though the race for economic and technological supremacy will be long, the country will ultimately come out on top. The world’s second-largest economy has been plunged into a new trade war with the United States, as a flurry of tit-for-tat tariffs has settled in and more are likely to arrive. Investor sentiment and consumer confidence, two key pillars of domestic activity, have been subdued. Though Beijing’s gross domestic product gap with Washington had widened for a third straight year, the Chinese president remained optimistic. “The east wind is still prevailing,” he said at the high-profile meeting, reiterating earlier pronouncements of the country’s rise concurrent with Western decline. “The East still holds a great deal of promise in the long run, and the Chinese economy remains incomparable on the world stage.” This declaration comes as US President Donald Trump is pulling out all the stops to consolidate his country’s economic supremacy. Despite the numerous adversities that come with heated international competition – trade restrictions, tariffs, intense geopolitical pressure – analysts have noted some positive factors for China, including the elevation of its home-grown technology on the world stage and its manufacturing sector continuing to innovate and stay resilient. When China’s top legislature convenes next week to review and approve the government’s work plan for 2025 – including the target for GDP growth – determination to fuel the country’s rise relative to the West will continue to drive policymaking at the highest level. Consensus among observers is the GDP target will again be fixed at around 5 per cent, with hopes the momentum from recent successes in the tech race can boost confidence among domestic businesses and consumers and offset the impact of Trump’s containment measures. “A self-assured Beijing is playing the long game, less bothered by the temporary GDP gap,” said Zhu Tian, an economics professor at the China Europe International Business School in Shanghai. By the numbers, that gap has widened. Last year, China’s nominal GDP growth – which accounts for inflation – came in behind the United States once again, 4.2 per cent versus the 5.3 per cent logged by its Western rival. The absolute size of China’s economy reached 135 trillion yuan (US$18.61 trillion) in 2024, compared to the US$29 trillion projected for the US. The proportion of its GDP relative to the US fell below the two-thirds mark last year, down from a high of three quarters in 2021. This divide was widened in part by the depreciation of the yuan, China’s currency, and high inflation in the US that boosted its nominal GDP. “China’s growth has noticeably slowed in recent years, but the focus is shifting from GDP to elsewhere,” Zhu said. “Advanced manufacturing and innovation, like in artificial intelligence (AI), get more attention. China’s gap with the US in tech and manufacturing is narrowing as a whole.” As companies like AI start-up DeepSeek burst onto the scene, policymakers are enthusiastic about their potential to help move the dial of the superpower rivalry to China’s advantage. Other signs of progress in manufacturing and tech abound – none of which are directly represented in the GDP figures – suggesting China has advantages in certain areas. More electric vehicles are on the road in China than the US, and Beijing’s roll-out of 5G telecommunications networks was also much faster than its competitor across the Pacific. China’s home-grown airliner, the C919, is on the cusp of mass production and appears ready to enter a market currently dominated by Boeing and Airbus. The BeiDou satellite navigation system is on par with GPS in coverage and precision. Zak Dychtwald, founder and CEO of Shanghai-based market consultancy Young China Group, said the GDP comparison is more about vanity than anything of real consequence. “People thought China was a failure because it was not surpassing the US, despite being larger than the third, fourth, fifth, and sixth economies in the world [combined]. We should not define China’s success relative to the US,” he said. Dychtwald said for China to maintain its position and advance, the country needs to concern itself less with competition from the US than upgrading its manufacturing and building on recent momentum. “In the last four weeks we have seen the most positive portrayal of China [in the West], like the buzz about DeepSeek, that we’ve had in probably three to four years. So there’s been some recovery and rehabilitation of China’s image and confidence [in China],” he said. “China’s increased efficiencies in manufacturing will absolutely help its economy, fill the gap in productivity amid shrinking working demography and keep China on track as a world power.” When global executives come to visit factories in China, they’re surprised to see the floor can be lights off – because robots don’t need light to do their job Zak Dychtwald, Young China Group China has had the world’s largest manufacturing sector by output for 15 years running, with that figure exceeding 40.5 trillion yuan (US$5.58 trillion) last year and the industry contributing to 36 per cent of GDP. By contrast, manufacturers in the US account for 10 per cent of GDP, with value-added output of US$2.93 trillion in the first three quarters of 2024 according to the National Association of Manufacturers. Analysts said there are indicators besides GDP and industrial output that can be employed to gauge how China’s economy stacks up against the US – in particular, total factor productivity (TFP), industrial robot density and research expenditures. TFP is a measure of how efficiently labour and capital are used to generate output. China’s average annual TFP growth declined from 4 per cent to 1.8 per cent between 2010 and 2019, according to calculations by Liu Qiao, dean of Peking University’s Guanghua School of Management. However, this growth is still higher than the US, Liu said. That country’s TFP grew by 0.5 per cent per year for the past 20 years, and the academic is optimistic that China’s TFP growth – riding a wave of new innovations – can climb to 2 per cent to maintain 5 per cent GDP growth over the next decade. The US, meanwhile, will need to find ways to translate its tech prowess into broader productivity gains. China also beats the US in industrial robot density, with 470 robots installed per 10,000 employees in 2023 compared with the US’ 295, per data from the International Federation of Robotics. “When global executives come to visit factories in China, they’re surprised to see the floor can be lights off – because robots don’t need light to do their job,” said Dychtwald of Young China Group. “It’s striking to see that transition. When you think of assembly lines, you think of a lot of people putting together components part by part. There is a need to create more productivity with fewer workers and more innovation, and it’s happening in China.” As DeepSeek and other ascendant tech firms upend long-held assumptions about US dominance in the field, manufacturers and government departments have been quick to adopt their products to enhance efficiency, narrowing the US’ first-mover advantage. China is also making up a bigger proportion of global R&D, the World Intellectual Property Organization said in a report, with its share rocketing from 4 per cent in 2000 to 26 per cent in 2023. During the same period, the US’ share dropped by more than 8 percentage points. The US’ total spending – US$784 billion in 2023 – could also soon be overtaken by China, whose outlays were US$723 billion that year. Even as political leaders express confidence in China’s ultimate victory, the country’s official assessments acknowledge the US’ current lead. Since 2012, the Chinese Academy of Engineering (CAE) has compiled rankings for nine major manufacturing economies – including China and the US – in terms of scale, quality, structural optimisation, innovation and sustainability. That year, China scored 89 points, lagging the US (156), Japan (126) and Germany (119). In the academy’s most recent report, released in December with data up to 2023, China was still in fourth place but had significantly narrowed the gap; the US, Germany, Japan and China scored a respective 189, 136, 128 and 125. Chinese manufacturers stood out in quality and efficiency, the academy noted, with performance in those areas reaching the average of developed countries. Beijing has obliterated the myth that used to prevail in Washington that it can’t innovate Liza Tobin, Garnaut Global “Three core indicators for China – TFP, manufacturing value-added rate and sales profit margin – all improved during the year,” it said. This year also coincides with the conclusion of the “Made in China 2025” industrial policy plan, launched in 2015 as Beijing attempted to shift its manufacturing from goods on the lower end of the value chain and spearhead upgrades across 10 industries. As of April 2024, China had accomplished at least 86 per cent of the initiative’s 260 stated targets, according to calculations by the Post. One indication that talk of China’s progress is not all bluster came in the form of a February congressional hearing by the US-China Economic and Security Review Commission. Alarm over the US “losing out” was palpable. “Beijing has obliterated the myth that used to prevail in Washington that it can’t innovate – that it can only borrow and steal technology,” argued Liza Tobin, managing director at consultancy firm Garnaut Global. “We risk losing the unfolding industrial revolution, as AI converges with physical industry to transform how things are made, like what is happening [in China].” Sunny Cheung, a fellow at the Jamestown Foundation, also warned China may edge past the US at the hearing. “China’s AI and robotics ecosystem has seen significant growth, with major companies pioneering in hardware, AI integration and industrial automation, positioning China as a leader.” But Zang Jiyuan, a CAE manufacturing researcher, said in a December report there is no room for complacency. “The US continues to lead in structural optimisation, with the biggest improvement among the nine countries examined in the CAE ranking,” Zang said. “Leading American manufacturers who are among the Fortune Global 500 saw faster revenue growth than their peers in China … Their competitiveness strengthened in the past two years as they led adjustments of the global supply chain.” On CAE’s manufacturing scoreboard, China’s gap with the US widened between 2022 and 2023. Its scores rose from 124 to 125, but the US soared from 182 to 189. China also fared poorer in structural optimisation in 2023 than the year before, with the US scoring almost double. “China can have a strong manufacturing sector as well as an expanding gap with the US. China can be doing well and the US can still be doing better,” said Dychtwald of Young China Group, adding both have their respective strengths. “American manufacturing continues to lead in innovation, in ‘zero to one’ creation of new ideas, whilst China is excellent at scaling ‘one to 10’, in operationalising … The ability for rapid iteration, application of new tech like AI and robotics in manufacturing and strong government push are China’s real advantages,” he added. “Advanced manufacturing is one of those areas where China can be a natural leader.”