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Comparative Economies: This just in from the International Monetary Fund: China could pass the United States as the world's largest economy as early as 2016. With all due respect, the IMF has it wrong again.
A new IMF report blithely forecasts that the "Age of America" will end as the U.S. economy is overtaken by China. And on the surface, it's tough to argue the point.
Officially, China's GDP is growing at 10% while ours is expanding at about 3%. At those rates, China's economy doubles every seven years, America's about every 24.
But such forecasts are based on a straight-line extrapolation from current trends: So if China's growing at 10% now, it'll always grow that fast.
One has to wonder, too, about a politically motivated IMF "report" that predicts U.S. decline. Our troubles are many, but we've heard all this before.
The fact is, China itself faces formidable hurdles that will make it tough to keep growing at current rates.
This was tacitly admitted by China just last month, when it announced it was lowering its targeted GDP growth rate to 7% a year — a full third slower than its recent growth rate.
Moreover, the IMF doesn't even use the correct data. It uses overall GDP, not per-capita GDP. Big difference. It would be surprising indeed if a nation of 1.3 billion — 20% of all people on earth — didn't eventually become the overall largest economy.
But real wealth and productivity are measured on a per-person basis. And based on that, China won't catch the U.S. anytime soon. In fact, it may never catch us.
As the chart shows, China is way behind the U.S. in per-person income. Per-capita GDP in the U.S. is $42,517 in 2005 dollars. In China, it's about $2,802. Even by 2030, China doesn't get close to U.S. per-person output, not even at current growth rates.
This is important, because per-capita GDP is a rough proxy for productivity. China has at most a few more years of rapid, productivity-driven growth as it transfers millions of people from rural poverty into its cities, where they instantly see their productivity increase by a factor of as much as 10.
But, as we've noted before, due to its notorious "one-child" policy, China is aging fast. By 2040, its elderly population will exceed the total population of Germany, France, Britain, Italy and Japan today.
The old saying among economists is that you have to get rich before you get old. China's losing that race.
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Posted By: czarrboro(4505) on 4/25/2011 | 10:47 PM ET
How they gonna keep them down on the farm after they've seen Beijing!
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Posted By: czarrboro(4505) on 4/25/2011 | 10:33 PM ET
surgeukr, this editorial is spot on. American's can beat the Chinese with one arm tied behind their backs as the "Progressives" have made us do for the last 50 years. China has so many internal problems that cannot be solved by central planning: lack of resources, an EXTREME divide between rich and poor, an imbalance in the sexes, massive corruption, strong competition from India and other emerging economies, water issues, lack of arable land, just to name a few.
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Posted By: unclemark(10) on 4/25/2011 | 7:51 PM ET
The small value of GDP per person translates into an insufficient domestic market for Chinese manufacturing. Henry Ford raised wages so his employees could afford to buy his product. He still profited due to great increases in productivity... and illustrated the point: the more qualified customers, the better.
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Posted By: surgeukr(15) on 4/25/2011 | 7:35 PM ET
Second, if yuan becomes free-floating and the US continues on its money-printing spree, even the per-capita numbers will improve in China's favor simply due to higher exchange rate. Third, US population is also getting much older.
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Posted By: surgeukr(15) on 4/25/2011 | 7:33 PM ET
Ok, I like most of IBD's editorial articles, but this one is populist, chest-beating, nationalistic crap. First of all, the total GDP is the right metric to use if you're concerend with economic world-standing and power. If per capita is your benchmark, than the US itself has a lot of catch-up to do with countries like Lichtenstein, Singapore, Qatar, etc., since US is #10 by GDP per capita in the world.
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