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2012-01-05 08:35:49
The year when the Chinese economy will truly eclipse America s is in sight
Dec 31st 2011 | from the print edition
IN THE spring of 2011 the Pew Global Attitudes Survey asked thousands of people
worldwide which country they thought was the leading economic power. Half of
the Chinese polled reckoned that America remains number one, twice as many as
said China . Americans are no longer sure: 43% of US respondents answered
China ; only 38% thought America was still the top dog. The answer depends on
which measure you pick. An analysis of 21 different indicators chosen by The
Economist (see the full set) finds that China has already overtaken America on
over half of them and will be top on virtually all of them within a decade.
Economic power is best gauged by looking at absolute size rather than
per-person measures. On a few indicators, such as steel consumption, ownership
of mobile phones and beer-guzzling (a crucial test of economic superiority),
the milestone was reached as long as a decade ago. Several more have been
passed since. In 2011 China exported about 30% more than the United States and
spent some 40% more on fixed capital investment. China is the world s biggest
manufacturer, and partly as a result it burns around 10% more energy and emits
almost 40% more greenhouse gases than America (although its emissions per
person are only one-third as big). The Chinese also buy more new cars each year
than anybody else.
The country that invented the compass, gunpowder and printing is also
challenging America in the innovation stakes. We estimate that in 2011 more
patents were granted to residents in China than in America. The quality of some
Chinese patents may be dubious but they will surely improve. The World Economic
Forum s World Competitiveness Report ranks China 31st out of 142 countries on
the quality of its maths and science education, well ahead of America s 51st
place. China s external financial clout also beats America s hands down. It has
total net foreign assets of $2 trillion; America has net debts of $2.5
trillion.
The chart shows our predictions for when China will overtake America on several
other measures. Official figures show that China s consumer spending is
currently only one-fifth of that in America (although that may be understated
because of China s poor statistical coverage of services). Based on relative
growth rates over the past five years it will remain smaller until 2023. Retail
sales are catching up much faster, and could exceed America s by 2014. In that
same year China also looks set to become the world s biggest importer a huge
turnaround from 2000, when America s imports were six times those of China.
Find even more indicators and adjust the figures to make your own predictions
using our interactive chart
What about GDP, the most widely used measure of economic power? The IMF
predicts that China s GDP will surpass America s in 2016 if measured on a
purchasing-power parity (PPP) basis, which adjusts for the fact that prices are
lower in poorer countries. But America will only really be eclipsed when China
s GDP outstrips it in dollar terms, converted at market-exchange rates.
In 2011 America s GDP was roughly twice as big as China s, down from eight
times bigger in 2000. To predict how quickly that gap might be closed, The
Economist has updated its interactive online chart (also here) which allows you
to plug in your own assumptions about real GDP growth in China and America,
inflation rates and the yuan s exchange rate against the dollar. Our best guess
is that annual real GDP growth over the next decade averages 7.75% in China
(down from 10.5% over the past decade) and 2.5% in America; that inflation (as
measured by the GDP deflator) averages 4% and 1.5% respectively; and that the
yuan appreciates by 3% a year. If so, then China will overtake America in 2018.
That is a year earlier than our prediction in December 2010 because China s GDP
in dollar terms increased by more than expected in 2011.
Second place is for winners
Even if China became the world s biggest economy by 2018, Americans would
remain much richer, with a GDP per head four times that in China. But Rupert
Hoogewerf, the founder of the annual Hurun Report on China s richest citizens,
reckons that it may already have more billionaires. His latest survey
identified 270 dollar billionaires but the true total, he says, is probably
double that because many Chinese are secretive about their wealth. According to
the Forbes rich list, America has 400 billionaires or so.
America still tops a few league tables by a wide margin. Its stockmarket
capitalisation is four times bigger than China s and it has more than twice as
many firms in the Fortune global 500, which lists the world s biggest companies
by revenue. Last but not least, America spends five times as much on defence as
China does, and even though China s defence budget is expanding faster, on
recent growth rates America will remain top gun until 2025.
Being the biggest economy in the world does offer advantages. It helps to
ensure military superiority and gives a country more say in fixing
international rules. Historically, the biggest economy has become the issuer of
the main reserve currency, which is why America has also been able to borrow
more cheaply than it otherwise would. But it would be a mistake for American
leaders to try to block China s rise. China s rapid growth benefits the whole
global economy. It is better to be number two in a fast-growing world than top
dog in a stagnant one.