Will China overtake the US economy?
At some stage, it became apropos of conventional wisdom that China would knock the US off the top spot as the world’s biggest economy. It became accepted that post-Cold War triumphalism and the now infamous declaration of ‘the end of history’ was a short-sighted exuberance born from a moment of elation. The question has since become, when will China become the world’s biggest economy? For a time, the answer was agreed upon – sometime in the middle of the 21st century, experts said. As recently as 2020, the World Economic Forum predicted the Chinese economy could overtake the US by as early as 2024. But now, with China stuck in a slowdown, some analysts are beginning to raise doubt about whether the competitor nation will claim the crown at all.
How far behind is the Chinese economy?
As 2024 begins, the United States remains the preeminent economic power in the world. The dollar comprises some 87 per cent of foreign exchange reserves and 2023’s Q3 saw an impressive 5.2 per cent growth in the economy. While the US and allied countries receive 86 per cent of global portfolio investment, China sees just 2 per cent of the total. According to Colin Chapman, writing for the Australian Institute of International Affairs, this gap could prove insurmountable for China, even in the long term. In a recent report, he said:
“What are the chances of the China-led group of nations catching up with the US-led group in 2024? Based on the available data, this prospect is very thin indeed. Though their populations are similar, the China bloc only generates 27 per cent of the world’s GDP compared with 67 per cent in the US bloc…It will take a long time for China to surpass the US in economic terms; indeed, it may never do so.”
Have we seen peak China?
A slump in China’s formerly meteoric growth has prompted some analysts to declare that the Chinese economy is set to plateau. In a report for the AEI, senior fellow Derek Scissors claimed that by the year 2040, China’s growth would shudder to a halt. A recent article for The Economist argued China’s economy was now entering a period of maturation, and that it is now on course to reach parity with the US, rather than exceed it. And a report by the Carnegie Institute argued China’s uneconomical investment projects were piling up a debt burden which would drag GDP growth down to between two and three per cent.
A report by the Brookings Institute laid out three main crises facing the Chinese economy, demographics, real estate and unproductive projects. China’s since-scrapped ‘one child’ policy is set to have ramifications for the national population. The decline in birthrates means, according to projections, that China’s population will be half its current size by the end of the century. This is one reason for the rise of so-called ‘ghost cities’, many of which are now being knocked down for lack of prospective residents. And a host of infrastructure projects commissioned to service a ballooning population which never materialised are now dubbed by some analysts as a waste of money.
Writing for the Brookings Institute, Peter A. Petri argues the days of 10 per cent annual growth in the Chinese economy are not coming back. Writing in November 2023 he said:
“Decades of massive infrastructure and real estate investments have exhausted the backlog of high-productivity projects and are now dragging down the economy. China’s growth will not rebound enough to justify high investments; the economy is slowing for fundamental reasons including an ageing population, less rural-to-urban migration and the shift in demand toward services.”
Has the Chinese economy stalled?
Two decades ago, the Chinese economy was just 14 per cent the size of the United States. But rapid growth saw the competitor nation quickly close the gap, becoming 40 per cent the size of the US by 2010. This prompted analysts at Goldman Sachs to project the US could be overtaken as early as the 2020s.
However, recent inspection has experts more pessimistic about China’s prospects. Bloomberg Economics is now forecasting that Chinese GDP will exceed America’s in the 2040s – a common theme by now – but that it will only be by a small margin, before quickly falling behind again. The Cebr’s forecast said this period could last as short a time as just 21 years, with India projected to overtake both countries by 2080 as its population soars. It was a view shared in a recent analysis by CNBC which suggested the US, China and India may take turns in the top spot toward to the latter end of the century.
Writing for The Hill, Bruce Stokes highlighted the fact that Chinese growth could slump as low as 0.5 per cent. Commenting, he said:
“A 2022 IMF study concluded that while China’s total factor productivity, which measures both labour and capital inputs, rose 22 per cent between 2003 and 2011, it expanded a mere 5 per cent between 2011 and 2019.
“Meanwhile, China’s population is ageing and shrinking, down 850,000 in 2022. The United Nations estimates that the nation’s population will decline by 113 million people by 2050. In 2020, 17.8 percent of China’s population was over age 60. By 2050, that portion is expected to more than double to 38.8 per cent. Fewer able-bodied, less-productive workers will only accelerate the economic slowdown.
“And China’s future economic prospects may be crippled by debt. The IMF reports that China’s total public, private and corporate debt has grown from 172 per cent in 2010 to 265 per cent in 2021, an increase of 54 per cent. The U.S. debt ratio is higher, but it is growing more slowly.”
Analysts sour of China’s prospects
In the race for global economic supremacy, the question of whether China will overtake the United States has evolved into a nuanced debate, challenging predictions of an imminent shift in power dynamics. As we stand at the beginning of 2024, the long-assumed timeline of China surpassing the U.S. economy by the middle of this century or even earlier is facing growing scepticism.
The idea of a ‘peak China’ is gaining traction among some analysts, suggesting that the era of double-digit growth rates in the Chinese economy might be behind us. Concerns over maturation, demographic challenges, and unsustainable investment projects contributing to a burgeoning debt burden have led experts to question China’s ability to maintain the pace of its upward trajectory. The once-common narrative of China destined to dethrone the U.S. economy by now appears far less assured. Economic realities, demographic challenges, and shifting global dynamics introduce a level of uncertainty, challenging previously held consensus and prompting us to reevaluate. The race for global economic supremacy may unfold as a complex and dynamic interplay between the U.S., China, and emerging forces, reshaping the narrative of economic dominance in the 21st century.