Could China Surpass U.S. in 2012?

Could China Surpass U.S. in 2012?

China’s continued rapid growth should make it the main driver of the global economy next year as the U.S. slows down, the Conference Boardsaid in a report published Wednesday.

China could surpass the U.S. by one economic measure in 2012.

In just two years, the Asian country could even overtake the U.S. as the world’s largest economy — at least by one economic measure, the research group said in its annual global outlook.

China’s economy should grow by 9.6% in 2011 after expanding by 10% this year. By contrast, the U.S. economy is seen slowing to just 1.2% growth next year from 2.6% in 2010. According to the most commonly used way to compare economic size, the gap between second-place China’s $5.0 trillion economy and the U.S.’s nearly $15 trillion output remains large. By that measure, it could take China more than a decade to match the U.S. even at the current very high growth rates, which will be hard to sustain for the Asian country. But things look different when considering purchasing-power parity (PPP), which takes into account the goods and services a country’s currency actually buys at home and is a measure that’s closely watched by some professional economists, including at the Conference Board. Taking into account the difference in prices of the same goods between countries — in other words, measuring the real purchasing power people have in each country — the think tank predicts China could have a larger economy than the U.S. by 2012.

The Conference Board sees the U.S. economy slowing by almost 1.5 percentage points in 2011 due to slower spending by consumers, companies and the government. At only 1.2%, growth in the U.S. next year would be lower than both Japan and Western Europe, which are expected to grow by 1.5%. But thanks to strong emerging economies like China and India, the global economy is seen growing by 4.2% in 2011.

Looking further ahead, China could account for almost one quarter of the global economy in 2020, compared to 15% for the U.S. and 13% for Western Europe, or the 15 original European Union countries that include Germany and France. India, meantime, is expected to have 8% of the world’s output in ten year. Bart van Ark, chief economist at the Conference Board, cautioned the main risks to the projections are if China’s fast-growing economy is hit by uncontrolled inflation or asset bubbles.But his baseline scenario is that together with India, China will account for half of global growth from 2010 to 2020. Over the next decade, growth in emerging economies is expected to be more than three times faster than growth in advanced economies.

Becoming the world’s largest economy would pose “big challenges” for China by increases its responsibility to ensure the global economy runs smoothly while still dealing with a fragile domestic economy, van Ark said.For now, China has shown few signs of wanting a leadership role in the world economy like the U.S. currently has, refusing to bow to pressure from other countries to abandon its policy of boosting economic growth by keeping the value of its currency artificially low.

The U.S., meantime, is experiencing the downsides of being global economic leader and having a currency that’s used internationally to trade all sorts of goods. Last week’s decision by the Federal Reserve to print $600 billion to buy government debt in an effort to boost a weak domestic economy is being attacked by countries from around the world because one of the side effects is that it weakens the U.S. dollar. Leaders from the Group of 20 biggest advanced and emerging economies are meeting in Korea this week to discuss currencies and the global economy.

Indicating they’re not ready to take a leadership role, politicians in China have argued the country is still lagging behind others in technology and that most of its huge population live in poverty. And they’re right.In another measure of economic well-being — output per person — China is lagging far behind the United States.

In 2009, U.S. gross domestic product per capita stood around $46,000, according to the International Monetary Fund. By comparison, China’s GDP per capita was less than $4,000.

WSJ Blogs Real Time Economics

Source:

http://blogs.wsj.com/economics/2010/11/10/china-could-surpass-us-in-2012-by-one-economic-measure/

Economic insight and analysis from The Wall Street Journal.

Dr. Chao

Dep. of Finance, 2010/11/11

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Dr. Chao Yuang Shiang (PH.D in management), Assistant professor,Dep.of Finance,Nanhua University,Taiwan.
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