15
Sep

The celestial economy

Written on September 15, 2011 by Ángeles Figueroa-Alcorta in Americas, Asia, Globalization & International Trade, Political Economy

By 2030 China’s economy could loom as large as Britain’s in the 1870s or America’s in the 1970s

It is perhaps a measure of America’s resilience as an economic power that its demise is so often foretold. In 1956 the Russians politely informed Westerners that “history is on our side. We will bury you.” In the 1980s history seemed to side instead with Japan. Now it appears to be taking China’s part.

These prophesies are “self-denying”, according to Larry Summers, a former economic adviser to President Barack Obama. They fail to come to pass partly because America buys into them, then rouses itself to defy them. “As long as we’re worried about the future, the future will be better,” he said, shortly before leaving the White House. His speech is quoted in “Eclipse”, a new book by Arvind Subramanian of the Peterson Institute for International Economics. Mr Subramanian argues that China’s economic might will overshadow America’s sooner than people think. He denies that his prophecy is self-denying. Even if America heeds its warning, there is precious little it can do about it.

Three forces will dictate China’s rise, Mr Subramanian argues: demography, convergence and “gravity”. Since China has over four times America’s population, it only has to produce a quarter of America’s output per head to exceed America’s total output. Indeed, Mr Subramanian thinks China is already the world’s biggest economy, when due account is taken of the low prices charged for many local Chinese goods and services outside its cities. Big though it is, China’s economy is also somewhat “backward”. That gives it plenty of scope to enjoy catch-up growth, unlike Japan’s economy, which was still far smaller than America’s when it reached the technological frontier.

Buoyed by these two forces, China will account for over 23% of world GDP by 2030, measured at PPP, Mr Subramanian calculates. America will account for less than 12%. China will be equally dominant in trade, accounting for twice America’s share of imports and exports. That projection relies on the “gravity” model of trade, which assumes that commerce between countries depends on their economic weight and the distance between them. China’s trade will outpace America’s both because its own economy will expand faster and also because its neighbours will grow faster than those in America’s backyard.

Mr Subramanian combines each country’s share of world GDP, trade and foreign investment into an index of economic “dominance”. By 2030 China’s share of global economic power will match America’s in the 1970s and Britain’s a century before (see chart). Those prudent American strategists preparing their countrymen for a “multipolar” world are wrong. The global economy will remain unipolar, dominated by a “G1”, Mr Subramanian argues. It’s just that the one will be China not America. Read more…

As published in www.economist.com on September 10, 2011 (Print Edition).

Comments

Joseph Tan September 16, 2011 - 11:48 am

The prophecy is NOT bragged by CHINA. It is predicted by people like World Bank, IMF and the Economist and Wall Street Journal and the like. Anyway to CHINA all those figures are not important as well as who comes up to be on top.

As late as 1820 China GNP vis-a-vis with the WHOLE WORLD is about 1/3 (.i.e. 33.33%) That is much larger that at ANY TIME in US history, (US heydays during 1950 – 1960, the highest is about 26%).

MAKE NO MISTAKE – Except for the last 150 years or so, CHINA economy is ALWAYS the world largest since time immemorial!!!

Whether the above article makes that prophecy true or not is IMMATERIAL as far as CHINA is concerned. She HAD been there throughout history!!! She is destined to be there – whether the Western world like it or not!!!

rabaty August 31, 2013 - 4:19 pm

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