China becoming the biggest economy in ten years is not a given
Analysts predict that China will overtake the US as the world’s leading economy in the next decade, but external military conflicts and internal struggles could thwart the Asian giant’s ambitions. Political commentator Zhou Nongjian has the details.
Two points are particularly crucial in determining whether the Chinese economy can surpass that of the US in the next ten years.
Recent data released by China’s National Bureau of Statistics showed that China’s GDP expanded by 8.1% in 2021 to reach 114.4 trillion RMB, which is equivalent to US$17.7 trillion at the yearly average exchange rate.
While the US has yet to release its GDP for 2021, institutions around the world predict that the US’s GDP is expected to reach around US$23 trillion.
In other words, China’s GDP was about 77% of the US’s as of the end of 2021. This figure stood at 70% in 2020, which means that China caught up to the US by 7% within a year.
Not if but when
Will China surpass the US? In recent years, an increasing number of observers and researchers think that this is no longer a question of whether it will happen, but when it will happen.
Ever since China overtook Japan as the world’s second largest economy in 2010, it has been gaining on the US. Although China’s development rate has slowed in recent years, its GDP growth has consistently been higher than that of the US. It does not take much mathematical acumen to know that if the two economies continue to grow at different rates, the Chinese economy will ultimately surpass the US economy.
Various think tanks have offered different predictions as to when this will happen. The UK’s Centre for Economics and Business Research and the Japan Center for Economic Research think that this day will arrive in 2028. A joint report released by the National School of Development at Peking University and the Brookings Institution predicts that China will overtake the US as the world’s largest economy by 2030, while Beijing’s Development Research Centre of the State Council suggests that this will happen in 2032. Whether it is 2028, 2030 or 2032, they all point to the likelihood that China will overtake the US as the world’s leading economy in the next decade.
Stumbling blocks to be wary of
There are also a minority of academics who believe that China will not overtake the US in the end because of the following two points:
One, history shows no such precedent. For example, in the 1930s, many thought that Germany would rule the world. In the 1960s, people believed that the Soviet Union, which was rivalling the US in nuclear weapons, military power and space technology, would surpass the US. In the 1980s, there were also people who thought that the Japanese economy would surpass that of the US. However, none of these things came to pass. Although China has come into the picture now, perhaps the outcome would not be much different.
However, to deduce that the US is unsurpassable just because it has never been overtaken before in the past is a gross simplification. Throughout history, major powers that were once surpassed or replaced also held brilliant records of being unsurpassable before they were eventually overtaken, so the past does not guarantee the future.
Two, China faces many challenges today such as an ageing population, a low birth rate and a diminishing demographic dividend. In recent years, many Chinese and foreign enterprises have been shifting their manufacturing from China to Southeast Asia and South Asia as a result of rising labour costs and intensifying trade frictions. Since the global financial crisis, China has accumulated US$44.8 trillion worth of debt, posing a potential financial risk that may blow up in the future. China’s growth spurt has come to an end, with its growth rate falling from double digits to a single digit in recent years. It is difficult for a China that is no longer growing rapidly to catch up to the US.
The counterargument to this is that in the long term, an ageing population and a diminishing demographic dividend may affect China’s economic development, but not to the extent where it would have a significant impact on economic development within the next ten years. As for some enterprises that have shifted their supply chains to other countries, while this certainly affects China’s economy and demands attention, its impact will still be limited within the next decade. In terms of China’s high debt, most of its debts are domestic, with little external debt. For a country like China that is heavily controlled by the government, this would not pose a major risk, at least in the short term.
External conflicts and internal struggles
Actually, what could really pose a major risk to China’s economic development in the next decade or pour all of China’s efforts to surpass the US down the drain comes down to external military conflicts and internal institutional struggles.
As a Chinese saying goes, “The last leg of the journey just marks the halfway point.” As China heads towards the goal of overtaking the US, will it emerge victorious or will it ultimately prove that the US is unsurpassable as in the case of Germany, the Soviet Union and Japan? This depends on whether the Chinese economy can still maintain rapid growth in the next ten years. During this period, two points are especially crucial in terms of maintaining economic growth.
Firstly, war must be avoided. Once a large-scale military confrontation breaks out on the China-India border, in the Taiwan Strait or the South China Sea, the external environment for peaceful development will be ruined, the process of economic development will be disrupted, and the political outcome will be uncertain. Recently, former Australian Prime Minister Kevin Rudd said at a lecture that the 2020s are going to be “a make or break decade for American and Chinese global power” and “a decade of living dangerously” with the balance of strategic, economic and technological power between Washington and Beijing likely moving closer to parity than ever before.
Historically, major powers often choose to deal with emerging countries that try to overtake them by defeating them in a war. Based on the current gap in strength between China and the US, it is especially important for China to avoid large-scale military confrontations with the US or its allies. Recently, cross-strait relations have worsened and calls for a military reunification are getting louder. While Beijing thinks that the Taiwan issue is an internal affair, foreign observers view it different. Unless there is an extreme situation within the next decade, war should not be waged.
Secondly, reform and opening up must continue. The Chinese economy has enjoyed rapid growth over the past 40 years, changing from a country with an economy on the brink of collapse to one that has become the world’s second largest economy. This is the result of reform and opening up. It can be said that if reform and opening up continues, China will overtake the US at a faster speed and reach its goal sooner than expected. On the other hand, if it repeats the same mistakes and returns to the system before reform and opening up, it will never surpass the US.
In recent years, China seems to be making a left turn in its political direction, social management and economic policies. The extent to which this trend develops and whether it will be halted once a certain compromise is reached between the two systems is directly related to the speed of China’s economic development. Forty years of history have proven that there is a positive correlation between China’s economic development and reform and opening up, that is, the more China reforms and opens up, the faster the Chinese economy will develop, and vice versa.
Of course, China will continue to develop even under a compromise of the old and new systems, but its development rate will slow. While it is still possible to surpass the US, China may take longer to overtake the US due to the slowdown. If so, it may be difficult to fulfil the goal of surpassing the US within the next decade, and there could be other variables and uncertainties in the future as well.
Author: Zhou Nongjian, Think China