The sharp slowdown in China’s growth over the past year has many experts reconsidering predictions of when China will overtake the United States to become the world’s largest economy. Some even wonder if it will ever happen.
Until recently, many economists assumed that China’s GDP would overtake America’s by the end of the decade, peaking at what would be considered the greatest economic growth in history.
But forecasts for the Chinese economy have soured this year, as policies led by Beijing — including a “zero tolerance for the coronavirus” policy and efforts to curb speculation in the real estate market — hurt growth. As economists lowered their forecasts for China to 2022, they became more concerned about the long-term The country, when its demographic situation and debt levels do not work in its favor and can make it difficult to restore growth. For example, in a reassessment made by the British research institute, the “Center for Business and Economic Research”, China will overtake the United States and become the largest economy in the world two years later than expected in a preliminary assessment His only two years ago in 2020. Now, the center thinks that it will happen in 2030.
The Japanese Center for Economic Research located in Tokyo also carried out a reassessment. There, they predict that the passing of the baton will not happen before 2033, four years later than the institute’s previous forecast. Other economists question the assumption that China will ever win the top spot.
Is there any meaning to such ratings?
According to the former American Treasury Secretary, Larry Summers, China’s aging population and Beijing’s growing tendency to intervene in the business world, along with other challenges, led him to significantly lower his expectation for growth in China. He sees parallels between the predictions about the rise of China and old predictions about Japan or Russia overtaking the U.S. — predictions that now seem ridiculous, he said. “I think there’s a real possibility that something similar will happen in the Chinese case as well,” Summers said.
Researchers are debating how much significance this kind of GDP ratings have and more specifically if the situation in which China overtakes the US has any significance at all. Either way, it is clear that in any case the US will have a very large influence. The dollar is still expected to remain the world’s reserve currency for many years to come.
Size alone does not reflect the quality of growth, said Leland Miller, director of research firm China Beige Book. Living conditions in the US, measured in terms of GDP per capita, are five times better than those in China, and this gap is not expected to close anytime soon.
Still, a change in ranking would be a propaganda victory for Beijing, which wants to show the world and the Chinese people that China’s model is superior to liberal Western democracy, and that the US is sinking politically and economically. Over time, this could lead to more serious changes, as more countries reorient their markets To serve the Chinese market. “If Chinese growth slows significantly, it will affect China’s ability to project power,” Summers said.
The economic ranking between the two countries matters a lot to leaders in China. After data was released that the American economy grew faster than the Chinese economy in the last quarter of 2021, Chinese President Xi Jinping ordered his officials to ensure that the Chinese economy showed greater growth than the American one this year.
Financial fortunes can turn around quickly. In 2020, when China recovered faster than the US from the major outbreaks of the Corona virus, it seemed that the Chinese economy would overtake the American economy faster than expected.
The problems in the Chinese economy continue to pile up
Some economists are less troubled by short-term threats to Chinese growth. Justin Yipo Lin, former chief economist at the World Bank argues that its large population ensures that its economy will eventually be twice the size of the US. At a forum held in Beijing in May, he expected the process to continue despite the country’s recent slowdown. But the economic problems in China continue to pile on top of each other, among other things because of Beijing’s policy decisions to contain the corona virus at any cost and curb the debt.
The slowdown in the country’s real estate market shows no signs that the economy will pick up anytime soon. An index that tracks consumer confidence fell to its lowest level in several decades this spring. Unemployment among urban youth has reached a record high.
The Lauey Institute, an Australian research institute, wrote in a report in March that it expects Chinese growth to average only between 2% and 3% per year on average between 2021 and 2050 – far less than some researchers’ expectations that China would maintain growth at 4% to 5% until mid century Among other reasons, the institute cited the demographic component that is not beneficial to the situation, the small returns from infrastructure investments, and more. At the same time, the institute stated that even with growth of 2%-3% per year, China could still become the largest economy in the world, but “it will never establish a meaningful lead over the US and will remain much less prosperous and productive per capita than America, even in the middle of the century . Nor will its growth be sufficient to give China any significant competitive advantage.”
At the Laoi Institute, they added that the slowdown in the Chinese economy “at the very least further postponed the moment when China might overtake the US, and increased the likelihood that China might never be able to do so.”
In some measures, China has already overtaken the US
Measured by purchasing power, which takes into account different costs of goods and services across countries, China already overtook the American economy in 2016, according to World Bank data. When measured in dollar terms, however, the Chinese GDP in 2021 was 77% of the American GDP, compared to only 13% in 2001.
Capital Economics researchers wrote in a report early last year that in their most likely scenario, the Chinese economy will expand to about 87% of the size of the American economy in 2030, before falling back to 81% in 2050. The report places the blame for this on the shrinking size of China’s working population and its weak productivity growth, among other factors.
“A lot of people have for a long time overestimated the capabilities of the Chinese leadership and were shocked by the mistakes they made with the corona and in the real estate sector,” wrote Mark Williams, the company’s chief economist in Asia. “The weaknesses that these crises exposed were present and developed for a long time.”
Some researchers say China’s ability to overtake the US will depend on whether it intends to make more changes in economic policy. Brett Hoffman, director of the East Asia Institute at the National University of Singapore and a former World Bank economist, said he believes China can overtake the US in terms of GDP size until 2035 provided it raises the retirement age, allows more rural workers to move to cities, and takes measures to increase productivity, such as increasing spending on education and health services. But if policy makers only make “limited reforms” or if China suffers a debt crisis, It will not be able to bypass the US.
Other economists worry that the size comparisons could stir up nationalistic sentiments that could harm both countries. “Too many people have forgotten that our economies benefit each other,” said Andy Rothman, investment management strategist at Matthews Asia. Since joining the World Trade Organization, he noted, American exports to China have increased by more than 600% compared to 126% in the rest of the world.