When Will China Overtake the U.S. Economically?

According to Friday’s China Daily (and a host of other newspapers around the world), a just published Gallup survey claims that most Americans think China will be the world’s largest economy within 20 years. We obviously need to take these opinions with a grain of salt since, according to the same survey, 40% of Americans believe the China is today the world’s top economy, compared to 33% who believe it is the US. Since the US economy is currently more than four times the size of China’s, it is a little hard to understand why 40% of Americans think China’s is the world’s largest, but there you have it.

I suppose it is the combination of China hype and US paranoia that explains these bizarre opinions. To their credit, it doesn’t seem that informed opinion in China takes the results of this survey very seriously. The China Daily article pointed out that Chinese experts are a lot less confident about the validity of these predictions than their American counterparts, and I suspect they are right.

Perhaps this Chinese skepticism is because Americans have made similar predictions before, and these predictions turned out to be absurd. It was well known in the late 1950s that thanks to their superior technology and better economic management the Soviet Union was all but certain to overtake the US economically before the end of the 20th Century. That didn’t pan out, of course, but without missing a beat Americans then switched their focus to Germany, whose inexorable rise as a quality-oriented export machine in the 1960s and 1970s made it seem that it was just a matter of time before it did the trick (in the 1930s they were also supposed to overtake the US at some not-too-distant time, but that didn’t pan out either). By the mid 1980s all other contenders were chucked into the waste bin when it seemed breathtakingly obvious that the Japanese juggernaut was the one that would crush everyone before it. Now, apparently, it is the turn of China.

I don’t want to make too much fun of US paranoia. Americans are intensely competitive and we seem to need a serious challenger to justify ourselves existentially. Perhaps that is part of our strength. On the other hand, as I’ve seen printed on numerous t-shirts, “Just because I am paranoid doesn’t mean they aren’t out to get me.” So is the paranoia justified?

I pulled out my trusty calculator to see what it would take for China’s GDP to overtake that of the US by 2028. If we assume that China grows by 10% a year for the next few decades years, and that the US grows by 2% a year during that same period, the mathematical conclusion is inescapable: the Chinese economy will equal that of the US in twenty years and will be nearly six times as big by the middle of the century.

But how likely is this? In my opinion it is extremely implausible. First, US GDP growth is much more likely to average 2.5-30% a year, as it has for much of its recent history. Second the idea that China can grow at 10% on average for the foreseeable future is, to put it charitably, a little unlikely.

Why is it unlikely? Since it began its reforms in the mid-1970s, China’s economy has in fact grown at roughly 10% a year, and participants in the earlier “Asian miracle” were also able to achieve similar levels of growth for many years, so why is it so hard to think that this growth level cannot continue for China into the indefinite future?

Let us leave aside the statistical observation that it is far more likely for smaller countries to end up in the “tails” of a probability forecast than for a country as large as China – in other words for purely statistical reasons small countries are more likely to be on the very high or very low end of a standard distribution of outcomes than are large countries. This observation, by the way, dovetails nicely with the actual range of historical growth rates in Asia, where smaller countries have been both the best and the worst performers. There are still at least three other sets of reasons why this 10% forecast is unlikely and why we need to adjust these numbers sharply downwards.

Special circumstance

The first set of reasons involves the special circumstances that have so far underpinned China’s recent growth and its sustainability, the second has to do with demographics, and the third has to do with a few obvious emerging problems facing China’s economy as it continues to grow. To address the first set of reasons, Chinese growth since the 1970s, as I see it, was powered by three special circumstances, none of which are sustainable over the long or even medium term. The first special circumstance occurred in the early stages of China’s reform, when Deng Xiaoping began to unshackle the Chinese economy in the late 1970s. As is widely known, many of his immensely successful government reforms consisted simply of unwinding some of the policies of his predecessors – which were among the most inefficient economic policies ever put into place.

Remember that in the 1930s, China’s per capita income was not much below that of Japan and Taiwan, and I believe it was higher than that of South Korea (although perhaps not of the more highly industrialized North Korea, which anyway put into place some of the same policies that China had before the Deng Xiaoping reforms, and suffered a similar fate). China’s per capita income at the time was also substantially higher than many of its Asian neighbors who subsequently undertook their own economic reforms, and who still far surpass China in GDP per capita. Under the economically repressive policies of its early leaders post-1949 China fell way behind its neighbors, and so it is no surprise that simply unwinding some of the policies that so sharply repressed Chinese economic growth would have created a massive growth spurt that would allow it to narrow the tremendous lead its neighbors had enjoyed. In a similar way I have little doubt that when North Korea finally begins its economic reforms, its growth rate will even surpass that of China as it too is able to take advantage of the reversal of economic repression.

China is still benefiting from unwinding of its failed economic experiment, but clearly as China advances it becomes harder and harder to sustain the growth differential simply by removing the earlier political impediments. Simply put, once all the worst policies of the 1950s, 1960s and 1970s are eliminated, there will be no more free lunch.

The second big cause of recent growth, in my opinion, was the tremendous fiscal expansion China underwent in the 1990s. It is hard to measure the extent of this expansion because it occurred almost entirely through a rapid expansion of bank lending to unprofitable state-owned enterprises, but it also left the banks saddled with enormous amounts of non-performing loans and it nearly crippled the banking system. This hidden fiscal expansion still occurs to some extent, but clearly there are very tight limits as to how much more expansion the government can engineer, and of course fiscal expansion is not a free lunch. It must be paid for in the future.

Finally, the third cause of extraordinary growth (and the period of most extraordinary growth) began roughly in 2003 or thereabouts, when China found itself locked into a monetary regime that resulted in out-of-control money expansion. China is still living with this monetary regime, and while the early stages of this kind of growth are always wonderful – asset price increases, plentiful credit, rapid growth – at some point the consequences, as we are already seeing, lead to significant economic imbalances and the need for adjustment. We may begin to see already in 2008 the process of this unwinding. At any rate, this latest phase of Chinese growth is also unsustainable, in my opinion (for reasons I have discussed many times in this blog).

The demographic crisis

So assuming that there are no special changes or challenges facing China, and assuming that absent these special circumstances things can continue as they have, what is a reasonable projected growth rate? I am not smart enough to say, but certainly I think we can say 10% annual growth for the medium- or long term horizon is at best the upper limit, not the expected mean. Let’s assume that if current circumstances remain in place and if we eliminate the special circumstances that underpinned the impressive growth rates of the last three decades, China can grow at an upper limit of 9-10%. I think this may be a little generous, but I want to be conservative as I work this number down.

That brings us to the second set of reasons why a 10% annual growth rate is unlikely for the future – the demographic challenge. During the period of Chinese growth since the late 1970s, China benefited from a double advantage. Not only was its population growing, albeit slowly, but more importantly, its dependency ratio improved dramatically (the dependency ratio is the percentage of non-workers – basically the too-old and the too-young – in the total population).

After the horrors and dislocations of the anti-Japanese war and the subsequent civil war, with the establishment of peace and the New China in 1949, the country not surprisingly enjoyed a baby boom. One consequence of the baby boom, of course, was deterioration in the dependency ratio, as an explosion of births meant that an increasing fraction of the population was too young to work. From 1949 to the mid-1970s China saw its dependency ratio rise (deteriorate) quickly.

This deterioration in the dependency ratio began to reverse itself in the 1970s as young people born in the 1950s and 1960s became old enough to join the work force, causing a surge in employable workers. With the implementation at that time of the one-child policy, the improvement in the dependency ratio accelerated sharply as China saw the number of children drop as a share of its population. The combination of the two factors was impressive. Thanks to the maturing baby-boomers and one-child policy, from the mid-1970s to the present China enjoyed one of the most dramatic improvements in the dependency ratio that the world has seen.

This had to come to an end, however, because fewer children today also means that in the future there will be fewer workers. Demographic experts project that China’s dependency ratio will continue improving for another two or three years, but after that it will begin to deteriorate almost as dramatically as it had previously improved (the baby boom moves into retirement but there are too few young adults to replace them). This deterioration will be exacerbated by the fact that China’s total population is at or near its peak, and will decline slowly over the next few decades.

How will this affect Chinese growth? It is of course hard to say, especially since the scale is unprecedented and we don’t have too many examples of similar circumstances with which to compare China, but economic growth is equal to the growth in the number of workers multiplied by the growth in productivity per worker. From the mid-1970s to now, my very rough back-of-the-envelope calculations suggest that China’s working population grew on average by about 2% to 2.5% a year. From 2010 to 2050 my equally rough calculations suggest that the working population will decline by around 1% annually.

That means that China will face roughly a 35 to 3.5% differential growth rate of workers between the last 30 years and the next 30 years. There are too many unpredictable factors that can result from this decline in workers, so it is dangerous to imply any precision at all in my predictions, but I would guess that a plausible, unbiased prediction would suggest that in order to account for this dramatic change in the growth rate of the working population, we should reduce the current “equilibrium” growth rate by 3.0-3.5%.

That takes us to projected growth rates of around no more than 6-7%, and perhaps less. This may seem like a very low number (and there are additional reasons to think it should be adjusted downward). Certainly it is well below what nearly every economist seems to be predicting for China, especially in light of the high and persistent growth rates enjoyed by other Asian countries, but it is not as crazy as it sounds. It is true that many Asian countries were able to generate growth rates at substantially higher levels for many years, but a significant part of that growth was also generated by improvements in the dependency ratio. I have seen one World Bank report that argues that as much as 30% of the Asian “miracle” can be explained by this factor alone, and of course Paul Krugman in his notorious Foreign Affairs article (in 1997, I think) argued that much of the rest of Asian “miracle” growth could be explained by other factor labor-growth-related inputs. As surprising as it may seem at first, it is not out unreasonable at all to assume that a sharp reduction in the growth rate of the working population must also result in a sharp reduction in output growth.

By the way demographic changes do not have the same adverse effect on the US because not only is the US population growing steadily during this whole period (from four times as big today, China’s population may be 2.5 to 3 times as big as the US by 2050), but its dependency ratio is more or less stable. US population is expected to grow at around 1% annually into the middle of the century, and its working population is expected to keep pace – and perhaps even grow a little faster as Americans are increasingly likely to work later years.

Emerging problems

These two sets of sets of reasons explain why I think a projected 10% annual growth rate into the medium term is very optimistic, but there is still a third set of reasons to doubt the optimists. China has many other, almost unimaginably tough problems that need to be addressed in order to maintain high growth rates, and by addressing these problems the “equilibrium” growth rates may, and probably will, decline. One of the most obvious is that Chinese growth has come at the expense of a very serious degradation of its environment. Chinese environmental problems are by now so well known that it is unnecessary to argue why this process isn’t sustainable in the long run or even in the medium run, but it is worth wondering what the growth consequences will be when Chinese businesses are no longer able to count on the free depletion of their natural endowment.

What do I mean by this? If I create $10 of economic value in my factory while destroying $2 of economic value by depleting my natural endowment, my real contribution to the economy should be measured as $8. However in recent years Chinese businesses have been able to ignore the $2 they have destroyed (polluting rivers, destroying agricultural land, etc.) and have claimed the full $10 as economic value-added. This can’t go on for ever, and once these businesses are forced to recognize and pay for the $2 of damage, their contribution to economic growth per equivalent unit of activity will decline. This must show up as slower GDP growth (and I am not including the cost of reversing the previous environmental degradation).

I have no idea what the net effect will be, but I have heard estimates of the annual cost of environmental degradation ranging from 1% to 3% of GDP. Let’s say that these numbers are exaggerated, and that there are also secondary GDP benefits to environmentalism, perhaps it is still reasonable to shave 0.5% to 1% off GDP growth projections.

There is more. China has a severe water shortage – it is so bad that many water experts refer to a looming water crisis in the next decade. I am not enough a good enough economist or engineer to figure out the economic impact, but it can’t be controversial to suggest that the need to resolve the water crisis will somehow constrain economic growth. This constraint may be very significant, especially in the north where the water crisis is most severe.

Similarly with other commodities. For China to catch up to the US in total size by 2050, Chinese per capita income in 2050 must equal or exceed US per capita income today (I explained why in an entry last month). It is hard to imagine that if 20-25% of the world population move from the poverty of China today to the consumption level of the US today, the demands on the world’s resources won’t be strained somewhat. This will undoubtedly have a cost to GDP growth. By the way, one measure of how implausible the idea that China’s GDP will equal that of the US by 2050 is precisely that it would require Chinese per capital income in 2050 to be equal to or more than US per capita income today. Anyone who has traveled though China will find that a little hard to imagine.

But wait, since constraints on the world’s resources are a global problem, and not a Chinese problem, won’t that also constrain US growth? Almost certainly yes, but it seems pretty safe to say that the world’s wealthier, more flexible economies generally suffer less from high commodity prices and commodity shortages than the poorer countries, so the cost will be borne disproportionately by China and other poor countries.

I am ignoring in my calculations the possibility of serious social or political disruptions because these possibilities don’t necessarily change the expected outcome – they simply reduce the certainty we associate with those expectations. The most obvious uncertainty is political. Given the rapid social change China is undergoing (probably unprecedented in history in its magnitude) and the rigidity of its political structure, it is very hard to make a meaningful prediction about how the political system will react to the tremendous pressure China faces. Still, it is at least as plausible to argue that there will be occasions of difficult change and adjustment, and that these periods may have adverse economic impacts, as it is to argue that the process will be smooth and uneventful. This means that whatever the expected outcome, we would have to assign a much wider standard deviation than we might have for predictions about other countries.

I could go on, but I will make one final point. It is fairly well accepted among economists that rapid growth is easier for countries that are further behind technologically than the leaders, but as these countries advance the speed of the catch-up declines. This will probably happen to China too.

When will China overtake the US?

So where does that leave us? It is hard to say. These projections are necessarily imprecise and the mathematician in me insists that false precision is a great as sin as bad math, so I don’t want to refine the numbers too much. In the end I have no idea what a reasonable projected growth rate for China is for the next few decades, but I am very certain that 10% is implausible – almost impossible. I would suggest that anywhere between 5-7% is far more likely, and even lower numbers are not implausible. As you can see if you have been following the math, I am actually marking down my projection by a lot less than my arguments above would indicate because, like anyone else, it is not easy for me to want to vary too widely from the consensus. You can just write it off to my cowardice and inability to trust my own arguments.

At any rate if I reprogram these new set of numbers into my calculator, I show the following:

1. If we assume that the US grows at 2% a year forever, and that China grows at either 5% or 7% forever, in the first case China will be two-thirds the size of the US by the year 2050 and in the second it will be one-and-a-half times the size of the US by 2050.

2. If we assume the US grows by 2.5% forever, in the first case China will be little more than half the size of the US by 2050 and in the second case it will be 40% bigger.

3. If we assume the US grows by 3% forever, in the first case China will be little less than half the size of the US by 2050 and in the second case it will be 10% bigger.

4. Even in the most favorable relative case for China, China will be less than half the size of the US in 20 years. My guess is that this calculation distorts the likely outcome a little because whatever the average growth rate for China over the next forty years, it is likely to be higher in the first twenty than in the second (for many of the same reasons I downgraded the forecast). Still, it is in my opinion extremely unlikely that China will overtake the US in size within 20 years.

The world seems fervently to believe that China’s rise as the world’s largest economy is more or less a done deal even though it is hard to get the numbers necessary for such an outcome to work. China is clearly a large and growing economy, and there is little doubt in my mind that it will soon be the world’s second most important economy. There is even a possibility that it will be the world’s largest economy within our lifetimes, but that possibility is no certainty and, in my opinion, is not even highly likely. Perhaps paranoia just sells better.

Comments

[User 118516:]

In paragraph 6, I believe the author meant that the US economy would grow by 3%, not 30%.

2008 Feb 25 01:07 PM

[Tom B:]

Your analysis is dead on. The first rule of studying populations and anything ought to be that there are nature-imposed practical limits to growth, and water is rapidly emerging as a big one.

Another factor is that the top talent still prefer to live elsewhere-- like here in the US-- rather than staying in China. You can't own property there, and there are other limitations.

Having said that, I respect the value China puts on education and the huge numbers of scientists and engineers they put out every year. The US still has the best Universities in the world, but, increasingly, the people taking the reality-based subjects, like science, are foreign nationals who could "go home" if they chose. We NEED science to maintain our huge technological lead. Sadly, our primary and secondary schools have been all but destroyed by school-hostile legislation, like No Child Left Behind, ironically named, like all the Republican attacks on the middle class.

Moreover, the dollar is weak and we have awful healthcare and social services. We may see a point where talented Americans start emigrating to more family-friendly countries (maybe the EU?) because our leaders seem to believe America can coast on its reputation forever.

2008 Feb 25 01:23 PM

[Windwood Tr...:]

The regression analysis seems to be accurate- As far as it goes. What has been given little if any notice is the fact that China has been funding a healthy portion of our "growth" for several years. We as a nation are in debt up to our eyeballs with the Chinese holding the mortgage. Has the author factored in the debt service we are obligated to pay the Chinese?

Right now the Chinese have financed this country and it's international consumption of oil by purchasing around 90 percent of outstanding US Treasury debt.

How much of our GDP is represented by these debt payments? Perhaps the author can supply the numbers and their impact on our future.

2008 Feb 25 02:44 PM

[vboring:]

It seems that a discussion of peak oil concerns should be included.

Also, do we really think the US economy will grow at 2.5% perpetually? Maybe this is a reasonable assumption for 20 years, but at 40 years it starts to sound like more of a WAG.

2008 Feb 25 06:02 PM

[tessant:]

i think that people in the US dont understand that we are not going to be the biggest country in terms of economics in the near future. But its going to happen..

scott
growthportfolio

2008 Feb 25 06:17 PM

[Dake:]

You have not taken account of devaluation of US dollar. It has been said that Chinese yuan should be at least 40% higher than the rate now vs. US dollar. Therefore, if this is true, China's GDP is already 40% bigger.

2008 Feb 25 06:28 PM

[User 142738:]

The Chinese yuan isn’t a fully-convertible currency. It doesn’t even function like most currencies: you can’t sell your yuan in China like you can sell dollars in the U.S. The “value” of this currency is much like the value of the North Korean won: a farce from a ruthless regime.

The Chinese government knows that, if their currency were to float, the real numbers of money printing would overshadow all the new get-rich-investors buying the currency. The value would jump from the sudden influx of buying, then fall right back to 12¢ or so after people start realizing that printing money faster than the ECB and Fed doesn’t make sense.

2008 Feb 25 07:18 PM

[MikeS:]

You can get too wrapped up in the math but fundamentally a country that is 4 times the size of the US will have a larger economy once GNP per capital rises to at least 25% of the US. Given that many developing countries that have free market economies have done that since WWII it is self evident that one day China's economy will surpass the US...it is inevitable simply due to its population....we shouldn't view it as a negative---we want the Chinese to prosper so we can also sell to them....GNP per capita is the better measure as to the importance of an economy

2008 Feb 25 08:42 PM

[Feng:]

good analysis but the author seems to neglect two things

1. the appreciation of the Chinese currency. the appreciate of local currency happened in all other asian countries when they underwent their rapid development. China will be no exception. plus, acknowledge it or know, the US is going to get out of its debt through depreciation of $. this generation in the US enjoyed the status and benefit earned by the previous generation but unfortunately will squander it and not pass that on to the next generation. it's quite a shame to me.

2. although the working population in China will decline, but the educated working populaiton will continue to increase. The Chinese emphasize education much more than does the American. The improved education of China's workforce will likely more than offset the decline of the population.

Overall, from a historical perspective, China was a leading force economically, politically and technologically. It only lagged behind the rest of the world starting from early 19th centuray. The Chinese are hard working, intelligent, and have a very strong focus on education. These qualities helped China to be a major power in the past, and are still there to help China regain its status.

China surpassing the US economically is a natural thing given it's population size. And it's a good thing for the world. I see only political turmoil can stop China from becoming the biggest economy, if that happens, it's certainly not a good thing for Chinese, but it will not be a good thing for the rest of the world either.

2008 Feb 25 11:12 PM

[Dake:]

User 142738:
You must be joking. Now is 21 century not 19 or early 20 century. Chinese yuan is a solid currency even not fully convertable yet. Ask your govt why it push for Chinese yuan's appraciation? By the way, at the moment in China, no body want US dollar even in the black market because of its uncertainty (it could drop another 2% tomorrow). Your knowledge about modern China is ZERO. Study first before you write such crap.

2008 Feb 26 01:27 AM

[User 120461:]

I love the article, however, could you please put a short summary in the beginning so I don't have to read the entire thing?

2008 Feb 26 02:57 AM

[User 155987:]

This article has a major flaw. All the GDP calculations and growth forecasts are at currency exchange rates. Almost all economists believe that measurements at purchasing power parity (PPP) which takes price differentials between countries into account, is much more accurate. By this measure, the Chinese economy is indeed much larger - at least 60 to 70% of the U.S economy at this time. This is also borne out by the data on actual consumption and production of materials and, where available, services.

2008 Feb 26 07:58 AM

[ala7575:]

Good analysis. Just that exchange rate not considered. Now RMB is appreciating against USD at an annual pace of about 10% and, if Chinese government does not control it, RMB will rise much faster. So if China can grow 10% in the next 10 years while RMB appreciates at a speed of 10%, China might overtake US in 10 years.

2008 Feb 26 08:31 AM

[the US and ...:]

Excellent article. I generally agree with the author's line of thinking.

Just a thought on this who is bigger business- those on the side fanning fear in u.s. about the rise of the Chinese economy - will very likely to miss the growth opportunity there from investment perspective.

Those overly optimistic about the Chinese economy - should recognize there are many challenges as pointed out by the author.

I am personally on the optimist camp though. China's leadership since Deng all have been intellectuals and they continue to manage the country well.

China's use of IT is still very low compared to U.S. standards. Productivity for individual workers in China still has tremendous room to grow. Also, western style and modern business management are starting to proliferate in China.

I am betting on 10% growth for the next 10-20 years.

2008 Feb 26 12:59 PM

[huangthomas:]

All GDP data obtained from the World Bank have been adjusted for PPP. Once adjusted for PPP, you don't adjust for exchange rate again. As Chinese economy developed, the PPP is going to come down because exchange rate may keep going up, but the good and service will became more expensive. The open ended annual exchange rate increase of 10% is unattainable. Japanese currency (a free currency in the currency market) serves as a good example: in 1963, Yen is 360 to 1 USD. After Plaza agreement in 1985, it is Y 230 to 1 USD. Now it is Y 107 to 1 USD. It probably will stay in 100 to 120 range. Three times appreciation over 45-year period. As GDP increase, the life in Japan become more expensive, the PPP decrease. That's why Japanese are not very happy about their current living standard.

2008 Feb 26 01:03 PM

[ZTE:]

On China it would appear to be the case that you belong to one of two camps, the believers or the sceptics. Interestingly, a lot of the believers are Johnny-come-latelys. They were sceptics in 2003 but have now become hooked on teh fast growth drug.
I think that the policies that led to the US Boom are the same ones that have resulted in the largest US housing bust in 70 years, that are forcing widespread recapitalisation oft teh western financial system and that have produced the biggest malinvestment boom China ever has known. Yes, Easy-Al is the composer of the current Chinese boom too. But he had plenty of help from the maestros in Beijing that have refused to see (and still do) the consequences of distortionary monetary and exchange rate polices. Like Confetti-Al, they will find out that the only difference between boom hero and bust villain is that most misunderstood economic concepts, time.
Look at the Hong Kong Red-Chips-Mania of 1997 and you'll have clue where the Chinese A-share markets are heading to.

2008 Feb 26 02:06 PM

[Thomas Smic...:]

The USSR was supposed to overtake the US economy by 1959. They did in one area - concert pianists.

2008 Feb 26 03:18 PM

[User 156615:]

I think this analysis makes some seriously flaws assumptions. Though it is true the Japanese and German post-war boom were to an extent exaggerated in terms of its future potential, those countries were very small. China, afterall, has about 1.3 billion people. This means growth can continue down the 10% range for decades to come simply because their industrialization has not hit the diminishing return that you have seen in japan/germany and other asian tigers. On a per-capital basis, China is comparable columbia and it only needs to hit per-capital basis as costa rica or malaysia to over take current U.S GDP.

2008 Feb 26 05:50 PM

[the final h...:]

uh...think about this scenario folks...with 2 trillion bucks, the chinese just have to buy or secure our farmland via futures contracts with the farmers directly. think the next century...

the arabs bought PWI

i am probably wrong...but i dont remember more acreage added to the world landmass...and even less as farmable.

once this happens, they own us...the heck with the companies...companies come and go.

2008 Feb 26 08:59 PM

[huangthomas:]

Ha, this remind me of the real estate boom in Japan in l980s. At its peak, Japan can sell Tokyo to buy the entire United States.

2008 Feb 27 02:08 AM

[stud:]

The number computational and logical errors in this article are abominable- starting with the first claim that the Chinese economy (even after the recent changes in PPP computations) is 1/4th the size of US economy. Dude- wake up and take a look at the actual numbers: https://cia.gov/library/public...!!!!

Above link shows the new (reduced) GDP nos. in PPP terms. China is already more than half the US size and set to cross US GDP in PPP terms in under 10 years at current growth rates. One of the funny things about the recent PPP estimates is that they measured the cost of living in villages in China and India by looking at the cost of living in the suburbs. Anyone who has travelled to these countries knows that the cost of living in villages is much lower than in suburbs. So the actual Chinese and Indian GDPs in PPP terms might be a lot bigger than the 7 and 3 trillion shown here (not to mention the additional huge black economy that exists in most developing countries- estimated to be 60-80% the size of the actual economy). So China might have already crossed US in GDP size- unofficially.

If you are talking in nominal GDP terms, the GDP of China and India have been growing at 15-20% a year over the last few years. Even if the Chinese GDP in nominal terms is 4 times smaller than the US nominal GDP, the nominal expansion rate of expansion, as compared to US economy, is much faster than in PPP terms (as the Chinese cost of living rises along with the rising incomes, and their currency appreciates). The nominal GDP of China doubles every 5-6 years, and so does India's. At this rate the nominal Chinese GDP will also overtake US nominal GDP in 12 years.

Starting with economic clout over the rest of the World, this is only the second time in World history that the rapidly industrializing new kids on the block have a bigger population than the existing biggest economy. The first time it happened (only marginally) was when US overtook UK. Now it's the turn of US to be upsurbed by fundamentally much bigger economic powerhouses. And you are deluded to think that in 2050 consumption efficiencies will be at the same level as those in 2008. Btw, the per-capita consumption of earth-destroying materials such as energy and metals is already tapering off towards developed country levels in China. Most of th growth is now in the tertiary sector where the economic growth is not driven by massive further destructions of the world resources.

2008 Feb 27 04:44 AM

[willisj:]

China cannot rule nature. When you have 129 men for ever 100 women, thru design & culture, you have a very basic problem. China must either import women, or delete men.
I submit the logical way to even this out is a land war with Russia. You have all those natural resources + a reduction thru attrition in the war. The bear needs to be afraid, very afraid.

2008 Feb 27 08:06 AM

[emellis:]

I don't know much about academic economics.

But all China has going for it is slave labor. Automation continues to develop. Fewer people are needed in factories today than thirty years ago. What happens when nobody cares about workers who will work for $1 an hour with no bathroom breaks anymore?

Furthermore, rising fuel prices already have some people questioning the wisdom of overseas production.

And all of this fails to address the fact that U.S. labor rates have been dropping as groups like the UAW realize that their leverage is gone.

Rising levels of automation, rising wages in China (so I've heard), rising shipping costs, cheaper U.S. labor. None of this bodes well for the Chinese miracle.

2008 Mar 24 04:20 PM

[Faisal:]

china does not need to either import women or delete men.

they will perfect the cloning technology and unlike us they dont have any religious mumbo jumbo stopping them from doing so....

2008 Jun 10 10:14 PM

[User 291758:]

emellis, yes automation does pose a threat to the 'slave laborers' in China (though I would rather call them 'wage workers' which is exactly what it is in the US). But certain areas of production automation simply does not work and will not work until significant advances in technology which is still decades down the road. Which would mean it would be beneficial to China as her working age population declines, these 'lost workers' can then be replaced by automation and therefore maintain China's competitive edge.

I would be more worried about India with the continued rise in use of automation. Future Indian growth is banking on her growing young working age population. Her population as a hole is set to hit 1.6 billion in 2050 from 1.1-1.2 billion currently. Compared to China which in the same period will only rise by about 100-150 million people bringing total population to around 1.4-1.45 billion people, many of whom will be older than 64.

2008 Nov 05 12:02 AM

[User 291758:]

Also I forgot to mention that by 2050 onwards the Chinese population will have stabilized and start to decline as a whole.

2008 Nov 05 12:05 AM