The United States has been the world’s biggest
economy since 1871, but that top ranking is now under threat from China. The
Asian giant has achieved economic growth averaging 10% since it initiated
market reforms in 1978 and, in the process, lifting almost half of its 1.3
billion population out of poverty and becoming the undisputed second-largest
economy.
China’s gross
domestic product (GDP) – in terms of current prices and
market exchange rates – was estimated by the IMF
at approximately $8.25 trillion in 2012, which is just over 50% of US GDP of
approximately $16 trillion for the same year. While that is a significant gap
that may take China many years to close, using another measure known as Purchasing Power Parity
(PPP), China is forecast to race past the U.S. in just a
few more years.
In November 2012, the Organization for
Economic Cooperation and Development (OECD) published an
authoritative study on global long-term growth prospects. The study concluded
that on the basis of 2005 PPP rates, China may surpass the Euro area’s GDP
within a year, and that of the U.S. in another few years to become the world’s
largest economy.
Specifically, China’s GDP (based on 2005 PPP) is
forecast by the OECD at $15.26 trillion for 2016, exceeding the forecasted U.S.
GDP of $15.24 trillion for the very first time. China is estimated to pull
ahead of the U.S. steadily in the following years; the Chinese economy is
estimated to be 1.5 times as large as the U.S. by 2030 and 1.7 times bigger by
2060.
India, for its part, is only projected to surpass the U.S. in 2051, when
its GDP is forecast at $33.1 trillion, compared with U.S. GDP of $33 trillion.
The IMF reached a similar conclusion in its October 2012 World Economic Outlook
report, projecting that China’s GDP of $20.20 trillion in 2017 (based on
current, rather than 2005, PPP rates) will exceed U.S. GDP of $19.75 trillion
for the first time.
With a population less than one-fourth that of
China, the U.S. is still projected to remain one of the world’s most prosperous
economies by 2060. The OECD study forecasts U.S. per capita GDP or income to
more than double over the next 50 years, from roughly $43,000 in 2012 (based on
2005 PPP rates) to $92,000 in 2060.
China is forecast to boost its per capita income by
a stunning seven-fold over this period, from $8,000 in 2012 to $55,000 by 2060.
The
difference in income levels between China and the U.S. are
estimated to narrow substantially as a result. While 2012 per capita incomes in
the U.S. were more than five times higher than in China, by 2060, they would
only be 67% higher.
While the Chinese economy may be poised to surpass
the U.S. on a PPP basis in less than five years, the U.S. will continue to be
well ahead on most indicators related to living standards and quality of life.
However, China’s surging economic clout may result in the country increasingly
challenging the U.S. on a number of fronts, including diplomacy and military.
China is ranked 29th, with the WEF (World Economic
Forum) noting some deterioration in areas that have become critical for its
competitiveness, such as financial market development, technological readiness
and market efficiency.
Growth
isn’t always a great thing, with rapid economic growth over
more than three decades leaving China grappling with a host of problems including
income inequality, rapid urbanization, environmental issues and demographic
pressures due to the aging population.
While Americans have a higher per capita GDP, China
has an ever increasing middle class that finally has non-discretionary monies to
spend; consequently, the Chinese will be buying the same basic goods and
services that Americans traditionally have been buying causing a shortage in
the marketplace to develop.
This is a
by-product of population not per capita GDP because for every 1 middle class
American (relative to US per capita GDP),
there will be 4 middle class Chinese (relative
to China per capital GDP).
Since the
US middle class is shrinking this ratio could become larger over time.
