China’s economy will not overtake the US, some now predict

HONG KONG – The sharp slowdown in China’s growth over the past year has many experts rethinking when China will overtake the United States as the world’s largest economy – or even if it ever will.

Until recently, many economists assumed that China’s gross domestic product measured in US dollars would surpass that of the United States by the end of the decade, capping what many consider to be the most extraordinary economic surge ever.

But the outlook for China’s economy has darkened this year as Beijing-led policies — including its zero-tolerance approach to Covid-19 and efforts to rein in property speculation — have dampened growth. As economists downgrade their forecasts for 2022, they have grown more concerned about China’s long-term outlook, with unfavorable demographics and high debt levels potentially weighing on any recovery.

In one of the latest revisions, the Center for Economics and Business Research, a British think tank, believes that China will overtake the United States as the world’s largest economy two years later than it previously expected when it last made a forecast in 2020. It is now think it will happen in 2030.

The Japan Center for Economic Research in Tokyo has said it believes the handover won’t happen until 2033, four years later than its previous forecast.

Other economists question whether China will ever claim the top spot.

Former US Treasury Secretary Lawrence Summers said China’s aging population and Beijing’s increasing tendency to intervene in corporate affairs, along with other challenges, have caused him to significantly lower his expectations for Chinese growth.

He sees parallels between forecasts of China’s rise and earlier forecasts that Japan or Russia would overtake the United States — predictions that look laughable today, he said.

“I think there is a real possibility that something similar would happen with respect to China,” Mr. Summers, now a professor at Harvard University.

Scholars debate how meaningful GDP rankings are and question whether much will change if China overtakes the US. The depth and openness of the US economy means that the US will still have a large influence. The dollar is expected to remain the world’s reserve currency for years to come.

A slowdown in real estate has helped slow economic growth in China.


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mark r cristino/Shutterstock

Size alone does not reflect the quality of growth, said Leland Miller, CEO of China Beige Book, a research firm. The standard of living in the United States, measured by the gross domestic product per per capita, is five times that of China, and the gap is not likely to close any time soon.

Still, a change in the rankings would be a propaganda victory for Beijing, as it seeks to show the world — and its own people — that China’s state-led model is superior to Western liberal democracy and that the United States is in decline both politically and economically. . Over time, this could lead to more significant changes as more countries reorient their economies to serve the Chinese markets.

“If China slows its growth significantly, it affects China’s ability to project power,” Mr. Summers.

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How the two countries fare economically matters to Chinese leaders: After the U.S. economy outpaced China’s during the last quarter of 2021, Chinese President Xi Jinping asked officials to ensure the country’s growth outpaces that of the U.S. this year, the Journal previously reported .

Financial fortunes can quickly turn. In 2020, as China bounced back faster than the US did from the first Covid-19 outbreaks, it looked like China’s economy could overtake the US faster than expected.

Some economists appear less concerned about near-term threats to China’s growth. Justin Yifu Lin, a former chief economist at the World Bank who has long been optimistic about China’s potential, argues that its larger population means the country’s economy will eventually be twice the size of the US. At a forum in Beijing in May, he predicted the process would continue despite the country’s recent slowdown.

Nevertheless, economic problems continue to pile up in China, in part because of policy choices Beijing has made to contain Covid-19 and rein in debt.

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The country’s real estate slowdown shows no signs of letting up. An index that tracks consumer confidence fell to its lowest level in decades this spring. Youth unemployment in the cities is at a record high.

The Lowy Institute, an Australian think tank, noted in a March report that it expects Chinese growth to average only about 2% to 3% a year between 2021 and 2050, compared with some researchers’ expectations that China could maintain 4% to 5%. growth until the middle of the century. The institute cited unfavorable demographics, declining returns from infrastructure investment and other challenges.

With growth of 2% to 3% a year, China could still become the world’s largest economy, the institute noted.

“But it would never establish a meaningful lead over the United States and would remain far less prosperous and productive per person than America even at mid-century,” it wrote. Nor would its growth be enough to give it any significant competitive advantage.

In response to questions, the Lowy Institute said that China’s further economic slowdown since the report came out has “at least pushed back the likely moment when China can overtake the United States and made it more likely that China will never actually be able to to do so. so.”

With China’s urban youth unemployment at high levels, a job fair was held in Beijing last month.


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jade gao/Agence France-Presse/Getty Images

Measured by purchasing power, which takes into account different costs of goods and services across countries, China already overtook the US economy in 2016, according to World Bank figures.

However, in US dollar terms, China’s GDP was 77% the size of the US. in 2021, up from 13% in 2001, data from the World Bank shows.

Capital Economics researchers wrote in a report early last year that their most likely scenario predicts China’s economy expanding to about 87% the size of the United States by 2030, before falling back to 81% by 2050. That gave China’s falling working population and weak productivity to blame. growth among other factors.

“Many people have long overestimated the competence of China’s leadership and have been shocked by the missteps with Covid and the real estate sector,” Mark Williams, the firm’s chief Asia economist, wrote in an email confirming his firm’s forecast. “The weakness exposed by these crises has been present and growing for a long time.”

Some scholars say China’s ability to overtake the United States will depend on whether it pursues more economic policy changes.

China’s government has taken steps to curb property speculation; a residential building in Zhenjiang.


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str/Agence France-Presse/Getty Images

Bert Hofman, director of the East Asian Institute at the National University of Singapore and a former World Bank economist, said he believes China could overtake the United States in GDP size by 2035 if it raises its retirement age, allows more farm workers to move to cities and taking steps to increase productivity, such as spending more money on education and health care.

But China will not be able to catch the United States if policymakers pursue only “limited reforms,” ​​he said, or if it suffers a debt crisis. Further decoupling with the United States could make it harder for China to move forward as the flow of knowledge from abroad is disrupted, he said.

Other economists worry that size comparisons risk provoking nationalism that could harm both countries.

“Too many people have lost sight of the fact that our economies are mutually beneficial,” said Andy Rothman, investment strategist at Matthews Asia. Since China joined the World Trade Organization, he noted, US exports to China have increased by over 600% compared to 126% to the rest of the world.

“Looking at the Chinese economy and the U.S. economy as a zero-sum game — that’s not accurate,” he said.

A line for Covid testing in Beijing as the ‘zero Covid’ policy continues to dampen the economy.


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mark r cristino/Shutterstock

Write to Stella Yifan Xie at stella.xie@wsj.com

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