Will China Surpass the United States?

Abstract

Extrapolations of China’s growth suggest that China will soon surpass in size and prosperity the leading developed economies, even the United States. China has several advantages that suggest such convergence possibilities, including its land mass, large population, and rapid transformation over nearly three decades. However, there are serious disadvantages that will lessen the pace of convergence in future. This chapter provides several scenarios for the relative size of China’s GDP and for convergence of her income per capita. Under plausible assumptions, China will not reach the US standard of living until late in this century, at the earliest. Nonetheless, due to the size of its economy and markets, it will have a relatively large share of production and consumption of most goods and services in a few decades. Experience elsewhere, especially among China’s richest neighbors, indicates that convergence is unlikely even by then. China faces four trends that make even this possibility unlikely: urbanization, the transition from state ownership to private sector control of capital, slowing population growth, and rising political risks. The first two forces have been important to China’s success but are transitory and will work to reduce growth in the future. The financial sector’s development could extend the period of rapid productivity growth in China and could even allow the country to become the financial center of Asia. This would not alter the basic conclusions for the relative size of the economy or its convergence, however.

An earlier version of this chapter was published in International Economy, Spring 2007, 38 41. Reprinted with permission.