China's Economy Will Be The Largest, But The US Will Soon Regain The Top Spot
Long/Short Equity, Contrarian, Portfolio Strategy
Seeking Alpha Analyst Since 2019
Summary
- China's economy will become the world's largest, overtaking that of the US, probably around 2030.
- Demographic trends indicate that an eventually shrinking working age population, along with declining productivity, will slow China's GDP growth between 2030 and 2050.
- Meanwhile, a likely rising working age population in the US would drive growth.
- Both countries will probably have low birth rates, but high immigration in the US will make the difference.
China has about 18.5% of the world’s people, yet low population growth looms as a serious problem for its economy into the mid-21st century.
With great proletarian irony, this putatively Communist nation appears to be headed for a decades-long worker shortage that would hamstring economic growth. Projections illuminating this scenario put a big wrinkle in the impact of predictions that China’s economy will surpass the US within several years to become the planet’s largest.
These predictions create the impression that China is destined to be numero uno for decades to come. But this breaks Wayne Gretzky’s rule against focusing too much on where the puck (China’s economy) is now instead of where it’s going to be.
Though China will certainly overtake the US, it’s unlikely to have staying power. The Chinese economy will probably peak with its population around 2030. Subsequently, both will likely decline.
To a great extent, increases in gross domestic product are a function of population growth and productivity. Various data indicates that the US is positioned to do quite well by this axiom for the next three decades and China, poorly.
Demographic trends suggest that after China overtakes the US for a while, the US economy will soon resume its place at the top spot and stay there at least until 2050, if not longer.
Projections for the two economies indicate:
- A steep proportionate decline in Chinese worker population. The Pew Research Center projects that by 2100, China will lead the world in population decline, losing 374 million people. This trend sets the stage for potential economic peril--the loss of more than a fifth of its working-age population in a generation, by 2050, according to the US Census Bureau’s international database. In experiencing this drain, China would be joining most other major economies (with the exception of the US) in declining working-age population terrain. One reason for China’s looming baby bust is the nation’s previous, decades-old one-child-per-family limit. The government relented and started allowing two children in 2016 and three last spring, but this policy shift is apparently too late to avert the coming worker shortage. Like China, the US has and will have a low birth rate, but the US stands to gain working-age people from immigration, whereas China does not because more people are leaving than coming in.
- A growing working-age population in the US. Between now and 2050, the US will be the only major economy to gain working-age population, growing about 13%, according to the Census Bureau database. As immigration is in America’s DNA, it has several times the immigrant population of other major countries. Nearly one in seven residents of the US is foreign-born (48.2 million people) according to the United Nations. By contrast, data from Macrotrends shows that China has a current net migration rate of minus .252 per 1,000 residents. In recent years, China has had a small increase of migrant farm workers while losing many highly skilled people to the US and other countries.
- Low worker productivity in China, relative to the US and other major economies. China somehow still gets kudos for productivity despite a decline in output-per-worker since peaking in the early 2000’s. By 2018, China’s output-per-worker was about 20% behind that of the US, according to the International Labor Organization, and well below that of most other major economies (and falling). Its position has not improved since.
It’s hard to imagine a scenario where China could catch up to the US in 30 years. “Even assuming equal levels of productivity growth,” Morgan Housel of the venture capital firm The Collaborative Fund, writes in a white paper, “the US is head and shoulders better off than other developed nations, just given its demographics alone. America could drop the ball on technology while China/Europe/Japan make all the right moves, and America could still remain a much larger and more powerful economy.”
A big factor in economic growth is what kind of immigrants a country attracts and what they achieve after arriving. The most desirable immigrants a country can attract include those with entrepreneurial acumen and ambition.
While China has only seven of the world’s largest 50 companies, the US has 33. That difference isn’t surprising, considering that America has been the largest economy in the world since 1890. Yet many of these world-leading American companies and many others in the Fortune 500 were founded by immigrants or the children of immigrants, including Amazon, Apple, Tesla, Google, Pfizer, Kraft and AT&T.
The US entrepreneurial soil is renowned as the world’s most fertile. It has business protections from a democratic government based on the rule of law, patent protections (as opposed to the institutionalized theft of intellectual property in China) and, despite a lot of squawking about regulation in the US, a far less heavy-handed government. Capitalism thrives here without much interference, as opposed to China where regulation (and everything else) lacks due process; to wit, the recent government crackdowns on large companies, and on political freedom in Hong Kong late last year.
The only thing that could change China’s projected economic fate would be an unlikely reversal of longstanding immigration policy. But even if this happened, China would still have a shortfall of workers, as it ranks quite low on the global list of desirable immigration destinations.
Unless a lot of analysts are wrong, the 21st century will belong not to China, but to the US, chiefly for taking what American poet Robert Frost called “the road less traveled” regarding its unusually high encouragement of immigration. “And that,” as Frost wrote, will likely make “all the difference.”
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