Tags: China | US | growth | gdp

China Casts Long Shadow Over US in Race for Growth

By    |   Thursday, 12 April 2012 02:27 PM

China has been all over the news for the past few years. Ever since the country opened up to free trade in the 1970s, the country’s economy has been growing rapidly. In the past decade, China has zoomed past other large countries, to become the second-largest economy in the world.

Every year, mainstream analysts are predicting what year China will have a larger economy than the United States. A decade ago, people would have laughed at the prediction, but now many experts think it will happen within 15 years or less.

The Economist predicts that China will overtake the United States in GDP terms by 2018. Right now, the United States has a GDP of approximately $15 trillion, double China’s GDP.

China, like most emerging economies, is growing much faster than the United States. It seems likely that at some time in the near future, China will become the world’s largest economy.

Barring events like a civil war, which rumors of have been all over the Chinese media, it is inevitable that China will have the largest GDP in the world. This will change a lot of geo-political aspects, and China will be able to claim to be an equal to America; however, there will still be a big asterisk.

China will only have a larger GDP because the population is so much larger than ours. China has a population of 1.3 billion people; while America has a population of closer to 300 million people. If China had 3 billion people, and had a GDP per capita of Congo or Bolivia, it would currently have the same GDP as America.

If China reaches GDP parity with the United States in 10 years, the United States will still be far richer in terms of GDP per capita.

If China currently had the GDP per capita of Belarus, it would be close to parity with the United States. Belarus is the last dictatorship in Europe, has a weak economy, and the government would likely collapse without the help of Russia. That means currently, the average Chinese citizen has half the wealth of a Belarusian.

In fact, China would have to grow more than fivefold before catching up to America in GDP per capita. Even if China grew 8 percent a year, every single year, it would take more than 45 years to catch up the United States in terms of GDP per capita — assuming the United States didn't grow at all during the entire time period.

This is clearly close to impossible. America will grow, and China cannot continue to grow 8 percent every year, especially as the country gets larger.

Michael Pettis recently challenged The Economist, and bet that China won't have a larger GDP than the United States by 2018.

I have no opinion on this bet, but I would bet anyone that China will never have a larger GDP per capita than the United States.

It is important for everyone to keep this in mind, when hearing about China "taking over the world."

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Thursday, 12 April 2012 02:27 PM
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