American study says China’s economy will surpass that of the US in 2035

For long it has been speculated that China, with its consistent double-digit growth rate and a billion-plus population, would surpass the US as the world's largest economy. Now, an American think tank has come out with its latest assessment of the Chinese dragon that puts the year of reckoning as 2035.

By that year, says the report released by Albert Keidel of the Carnegie Endowment for International Peace in Washington, China's economy will overtake that of the US by 2035 and be twice its size by 2050.

"China's economic performance clearly is no flash in the pan," Keidel writes. "Its growth this decade has averaged more than 10 per cent a year and is still going strong in the first half of 2008. Because its success in recent decades has not been export-led but driven by domestic demand, its rapid growth can continue well into the 21st century, unfettered by world market limitation."

The report refuted the idea that China depends on exports, saying its growth was ''overwhelmingly'' driven by investment and consumption at home. China's economy will rise to take global and institutional leadership and the US will have an important secondary influence, much like Europe today, Keidel said.

''Because its success in recent decades has not been export- led but driven by domestic demand, its rapid growth can continue well into the 21st century,'' said Keidel. ''China's likely continued success will eventually bring an end to America's global economic preeminence.''

Keidel, who has worked as a World Bank economist and US Treasury official, said the rise of China to the world's biggest economy will happen regardless of the method of calculation.

Under current market-based estimates, China's gross domestic product is about $3 trillion compared to $14 trillion for the US.

Based on a more controversial purchasing power parity (PPP) measure used by the World Bank and others to correct low labour-cost distortions, he said China's GDP is roughly half of that of the US.

"Despite this low starting point, if China's expansion is anywhere near as fast as the earlier expansion of other East Asian modernizers at a comparable stage of development, the power of compound growth rates means that China's economy will be larger than America's by midcentury - no matter how it is converted to dollars," Keidel wrote.

"Indeed, PPP valuation distinctions will diminish and eventually disappear."

Keidel's calculations suggest that using the PPP method, China will catch up with the US as an economic power by 2020, with an equivalent GDP of $18 trillion.

Based on the more commonly accepted market method, the turning point will come by 2035. By 2050, he estimated Chinese GDP at some $82 trillion compared with $44 trillion for the current No.1.

With this shift in wealth, Keidel also predicts a change in global influence, with leadership of many international organizations showing a distinct Chinese tilt. "China's financial clout will spill into every conceivable dimension of international relations," he writes.

''Leadership of international institutions will gravitate toward China. This movement could include the equivalents at that time of the United Nations, the World Bank, the International Monetary Fund, regional international development banks, and more specialized bodies. Various headquarters could shift to Beijing and Shanghai.''

However, it won't be all smooth sailing for the Chinese. Even with this impressive economic growth, Keidel estimates the life of an average Chinese to be less comfortable from his fellow American.

Another significant hurdle for China will be handling the social problems accompanying its economic rise. "For a country with China's rapid pace of change, social unrest seems inevitable," he said.