China Growth Figures Show Rapidly Narrowing Gap With U.S. Economy

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China’s economic growth figures released Monday morning may show a slowdown, but they still indicate that China is growing almost four times as fast as the United States in dollar terms, rapidly closing the gap in the size of the two countries’ economies.

That is happening much faster than might be suggested by the headline figures: China said Monday that its economy grew 7.7 percent last year after adjusting for inflation, while the United States is expected to announce on Jan. 30 that its economy grew about 2 percent last year.

But such comparisons of inflation-adjusted growth rates ignore two big factors: that prices are rising faster in China than in the United States, and that China’s currency is also rising against the dollar.

Nominal economic output — which is not adjusted for inflation — grew 9.5 percent last year in China. Thomas Lam, the chief economist for industrialized economies at OSK-DMG, a Singapore investment bank and brokerage, estimates that nominal growth in the United States was 3.4 percent last year.

Further fueling China’s growth is the renminbi’s creeping up another 3 percent against the dollar during the last year. Compile the various factors, including that the currency difference was a little smaller earlier in the year, and it works out that China’s economy grew 12.4 percent last year in dollar terms.

That is nearly four times the estimated 3.4 percent rate in the United States.

Although 12.4 percent growth might sound extraordinary by American standards, China has managed even faster growth in recent years, when inflation and real growth rates were even higher.

The Chinese economy grew 18 percent or more in dollar terms in 2006, 2007, 2008, 2010 and 2011. It only fell short of that mark in 2009 because of the global financial crisis.

The triple combination of faster real economic growth, faster inflation and an appreciating currency explain how China’s economy more than quintupled in dollar terms from 2003 to 2013, to $9.2 trillion last year — still a little more than half the size of the American economy, but catching up fast.

The question following the data on Monday is how much longer China can keep up the pace — particularly given the extent to which China has financed its growth in recent years with an extremely rapid expansion of money and credit.

There are many signs that China’s tempo is flagging. Nominal economic growth has nose-dived in China from a peak of 22 percent in 2007 to almost 18 percent in 2010 and 2011 to a little less than 10 percent in each of the past two years.

That rapid slowdown does not fully show up in real economic growth rate data. But borrowers in China need to repay loans with actual renminbi, not inflation-adjusted renminbi. So what matters to them is the nominal growth rate.

Even fairly large companies in China are finding their borrowing rates creeping above 8 percent. Many small and medium-sized businesses without the political muscle or the size to obtain loans from the state-owned banking system depend heavily on the informal market — they are borrowing from local moneylenders who pool money from a neighborhood or community and lend it, often at exorbitant annual interest rates of more than 20 percent.

Exorbitant rates are hard to afford when nominal economic growth is 9.5 percent and seems to be still falling. Ding Lei, a paint distributor in Xi’an, complained that even as businesses like his were struggling, the informal interest rate in his city, as in many Chinese cities, remained stuck at 2 percent a month, or 27 percent a year with compounding — a sign that lenders are wary of defaults.

“It is far too high, I don’t understand why it can still be so high,” he said in a telephone interview. “My business has not been that great lately, certainly not as good as, say, two years ago.”