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When will China overtake America?

Dating game

When will China overtake America?

Date: Dec 16th 2010 | From The Economistprint edition


Just forget Monopoly or World of Warcraft.
The Economist’s idea of Christmas fun is guessing when China’s economy will leapfrog America’s to become the world’s biggest. The Conference Board, a business-research group, recently predicted that China could become the world’s largest economy as soon as 2012 on a purchasing-power-parity (PPP) basis, which adjusts for the fact that prices are lower in China. But economists disagree on how to measure PPP. And America will only really be eclipsed when China’s GDP outstrips it in plain dollar terms, converted at market exchange rates.

Since by that reckoning China’s GDP is currently only two-fifths the size of America’s, that day may still seem distant. But it is getting closer. When Goldman Sachs made its first forecasts for the BRIC economies (Brazil, Russia, India and China) in 2003, it predicted that China would overtake America in 2041. Now it says 2027. In November, Standard Chartered forecast that it will happen by 2020. This partly reflects the impact of the financial crisis. In the third quarter of 2010 America’s real GDP was still below its level in December 2007; China’s GDP grew by 28% over the same period.

If real GDP in China and America continued to grow at the same annual average pace as over the past ten years (10.5% and 1.7% respectively) and nothing else changed, China’s GDP would overtake America’s in 2022. But crude extrapolation of the past is a poor predictor of the future: recall the forecasts in the mid-1980s that Japan was set to become the world’s largest economy. China’s growth rate is bound to slow in coming years as its working-age population starts to shrink and productivity growth declines.





Make your own predictions by adjusting the figures in our

I
nteractive chart


Then again, the relative paths of dollar GDP in China and America depend not only on real growth rates but also on inflation and the yuan’s exchange rate against the dollar. In an emerging economy with rapid productivity growth the real exchange rate should rise over time, through either higher inflation or a rise in the nominal exchange rate. Over the past decade annual inflation (as measured by the GDP deflator) has averaged 3.8% in China against 2.2% in America. And since China ditched its strict dollar peg in 2005 the yuan has risen by an annual average of 4.2%.


The Economist
has created an online chart (www.economist.com/chinavusa) that allows you to plug in your own assumptions about future growth, inflation and the exchange rate.

Our best guess is that annual real GDP growth over the next decade averages 7.75% in China and 2.5% in America, inflation rates average 4% and 1.5%, and the yuan appreciates by 3% a year. If so, then China would overtake America in 2019 (see chart). If you disagree and think China’s real growth rate will slow to an annual average of only 5%, then (leaving the other assumptions unchanged) China would have to wait until 2022 to become number one.

Americans would still be much richer, of course, with a GDP per head more than four times that in China. But don’t expect that to dampen Chinese celebrations, whenever they come.

Reference Website

http://www.economist.com/research/articlesBySubject/displayStory.cfm?story_id=17733177&subjectID=348918&fsrc=nwl

Source :
Dec 16th 2010 | From The Economistprint edition


Arranged by Dr. Chao  2010/12/18
凡事唯有投入,結果才能深入; 凡事唯有付出,結果才能傑出;
凡事唯有磨鍊,結果才能熟練; 凡事唯有不煩,結果才能不凡。
能與智者同行,你會不同凡響; 能與高人為伍,你能登上巔峰。
你雖不能改變環境,但卻可以轉換心境;你雖不能樣樣勝利,但卻可以事事盡力。
Dr. Chao Yuang Shiang (PH.D in management), Assistant professor,Dep.of Finance,Nanhua University,Taiwan.
website:amazon.com/author/drchao
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