China economy will surpass US, but when?

The Chinese economy has sprinted right past Japan’s to become the No. 2 economy in the world.

So, how long will it be before China overtakes the United States?

America doesn’t need to worry about the China economy leaving the US in the dust anytime soon, economists say.

“We don’t have to look over our shoulder at all,” says Jay Bryson, international economist at Wells Fargo Economics in Charlotte, N.C. “They probably will not surpass us for 20 years under current growth rates. But even when they do, they won’t be anywhere close to our standard of living.”

The numbers illustrate the vast gulf. The Chinese economy, the International Monetary Fund estimates, will total about $5.4 trillion this year, while the US one will be about $14.8 trillion – almost three times the size of the Chinese economy. To catch the US, China will have to grow extremely fast while the US economy dawdles.

The US economy will grow by 3.8 percent this year, while the Chinese economy grows by 9.3 percent, the IMF estimates.

For China to catch the US in 10 years, its economy would have to grow at more than 12 percent per annum, for example, while the US grows at 2 percent, Mr. Bryson estimates. However, most economists say, it is unlikely that China will have sustained growth that high and the US will be that low.

“It would be safe to say they will catch us sometime in the next generation,” Bryson says.

In an analysis this past January, John Hawksworth, an economist at PricewaterhouseCoopers, projected that China will surpass the US by 2020 and “is likely to be some way ahead of the US by 2030.”

However, Mr. Hawksworth, who is based in London, also makes the point that Chinese growth begins to slow after 2020 because of its rapidly aging population (due in part to its one-child policy). In fact in two years, he projects, India will become the third-largest economy, racing past Japan. After 2020, he thinks, India will grow more quickly than China because it will have a younger and faster-growing population.

Even when China’s gross domestic product moves past America’s, China, with a population of 1.3 billion people, will still be far behind the US, with its 307 million people, in terms of the standard of living.

“The average Chinese will not live as good as the average American for at least a century,” Bryson estimates.

When the Chinese economy does become No. 1, there might be some “psychological implications,” says Todd Lee, group director of global economics at IHS Global Insight in Lexington, Mass.

For example, the Chinese will have more money for defense and space exploration. “At that point, what China does with its political system could have some import. If they have reforms and turn towards democracy, we may feel less threatened than if it stays the same as today,” he says.

One improbable way China could catch the US: if the US economy suffers a meltdown while the Chinese economy continues to grow. If the US economy shrank by two-thirds, the Chinese economy would be larger than America’s.

“To put that into perspective,” says Bryson, “during the Great Depression the economy shrank by one-third. So the US economy would have to decline by two times the Great Depression. That maybe could happen, but it’s very unlikely.”

China could also catch up to the US economy sooner if it were to allow its currency to appreciate faster, since its GDP is measured in terms of dollars, after inflation. “It all depends on how they view the global recovery is going,” Mr. Lee says. “Once they feel it is sustainable, they could allow their currency to appreciate at a relatively steady pace.”

The US economy probably became top dog in the early 20th century, when it surpassed Britain, Bryson says. But that was an era when it would have been difficult, if not impossible, to have accurate economic measurements.

“The US was the first to dominate during the Industrial Revolution,” he says. Now, China is becoming dominant. “So, it’s only a matter of time until they catch us.”