China's economy forecast, to be world's largest in 2015

The Chinese edition of the OECD Development Centre’s Chinese Economic Performance in the Long Run will be published on 25 March in Beijing at a ceremony presided over by OECD Secretary-General Gurría. The book, produced in association with the Shanghai People’s Press, is an update of the 1998 best-selling volume by Professor Angus Maddison for the Centre. For this edition, Professor Maddison has extended his projections for China to the year 2030 and revised some of his growth figures upwards.
On Tuesday, Hans-Werner Sinn, Professor of Economics and Finance, University of Munich and President of the Ifo Institute, wrote in an article published on Finfacts, that many argue that a US recession will no longer affect the world because China has supplanted America as an engine of the global economy. Wrong. Although China is growing fast, its economic power remains tiny. While the US contributes 28% to world GDP, China accounts for only 5%. The whole of Asia, from Turkey to China, contributes 24%, less than the US alone.

At some stage, the world may no longer catch a cold when the US sneezes, but that is far from being true now. Twenty-one per cent of China's exports and 23 per cent of the EU's exports to non-member countries go to the US. Thus, the world cannot help but be pulled down by a US slump. SEE: Global Economic Party is Over; The whole of Asia, from Turkey to China, contributes 24% of World GDP - less than the US alone; China accounts for only 5%

Instead of using the exchange rate to measure the level of Chinese performance, which greatly understates China’s role in the world economy, Maddison uses purchasing power parity (PPP) to convert yuan into US dollars and finds that China accounted for 5 per cent of world GDP in 1978, 15 per cent in 2003 and that this is likely to rise to 23 per cent in 2030. -see detail on PPP in World Bank and OECD articles at bottom of page.

Prior to 1890, China was the world’s largest economy. Chinese Economic Performance in the Long Run: 960-2030 AD uses a comparative approach to explain why China’s role in the world economy has changed so dramatically in the last thousand years. It concludes that China is likely to resume its role as the world’s largest economy by the year 2015, thus regaining the position it had held until 1890.

Professor Maddison says that China is still a relatively poor country. In 2003 its per capita income was only 17 per cent of that in the United States, 23 per cent of that in Japan, 28 per cent of that in Taiwan and 31 per cent of that in Korea. Countries in this situation of relative backwardness and distance from the technological frontier have a capacity for fast growth if they mobilise and allocate physical and human capital effectively, adapt foreign technology to their factor proportions and utilise the opportunities for specialisation which come from integration into the world economy. China demonstrated a capacity to do this in the reform period and there is no good reason to suppose that this capacity will evaporate.

"The pace of Chinese progress will slacken as it gets nearer to the technological frontier. I have assumed that per capita income will grow at an average rate of 4.5 per cent a year between 2003 and 2030, but that the rate of advance will taper off over the period. Specifically, I assume a rate of 5.6 per cent a year to 2010, 4.6 per cent between 2010 and 2020 and a little more than 3.6 per cent a year from 2020 to 2030. By then, in our scenario, it will have reached the same per capita level as western Europe and Japan around 1990, when their catch-up process had ceased. As it approaches this level, technical advance will be more costly as imitation is replaced by innovation. However, by 2030 the technical frontier will have moved forward, so there will still be some scope for catch-up thereafter.

With such a performance, China should overtake the United States as the world’s biggest economy before 2015 and by 2030 account for about a quarter of world GDP. It would have a per capita income like that of western Europe in 1990. Its per capita income would be only one third of that in the United States, but its role in the world economy and its geopolitical leverage would certainly be much greater," Maddison said.

chinese economic forecast, Outlook for 2009-10

The government's main priority is to support the economy, amid concerns that rising unemployment could increase social unrest. However, even if unrest grows, it is unlikely to create a nationwide anti-government movement.
Accountability will improve within the ruling Chinese Communist Party, but wider reforms to increase democracy will not occur. The government's campaign against official corruption will intensify.
The Economist Intelligence Unit expects real GDP growth to slow sharply owing to the global economic downturn. In 2009 real GDP will grow by just 6%. Growth will recover in 2010, but only to 7%.
The economy will be supported by a rapid expansion in government infrastructure spending and policies to revive housing investment. However, this will lead to a substantial rise in the budget deficit.
Amid slowing demand and falling commodity and food prices, consumer prices are expected to decline by an average of 0.2% in 2009.
Despite the poor outlook for exports, falling commodity prices will depress import values. As a result, the trade surplus will remain huge. The current-account surplus will narrow to 6.1% of GDP in 2009 and 4.5% in 2010.

China's economic growth forecast could fall to 6.5 percent in 2009, according the World Bank's latest global forecasts.

The World Bank Tuesday slashed China's economic growth forecast to 6.5 percent in 2009 but said the Asian giant was resisting the global economic firestorm with solid fundamentals.

"As the global crisis has intensified, China’s exports have been hit badly, affecting market-based investment and sentiment, notably in the manufacturing sector," the World Bank said in releasing a quarterly report on China's economy.

In sharply lowering its previous 7.5 percent growth estimate for the Asian giant, the World Bank noted it followed recent downward revisions for global gross domestic product (GDP) growth in 2009.

According to the latest World Bank global forecasts, published in December, the world economy would expand at a weak annual rate of 0.9 percent in 2009, with a 0.1 percent contraction in developed economies offset by growth in developing countries of 4.5 percent.

A Chinese government think tank this month forecast first-quarter growth would slow to 6.5 percent from a 6.8 percent pace in the fourth quarter last year.

"China is a relative bright spot in an otherwise gloomy global economy," said the World Bank’s country director for China, David Dollar.

"Shifting China's output from exports to domestic needs helps to provide immediate stimulus while laying the foundation for more sustainable growth in the future."
The World Bank said that China's banks "have been largely unscathed" in the global financial turmoil that accelerated after the collapse of US investment bank Lehman Brothers in September.

"The economy still has plenty of space to implement forceful stimulus measures," said the Washington-based development lender.

Chinese Premier Wen Jiabao said last week that China has made plans to inject more money into the economy, admitting the global crisis was making this year's growth target of about 8.0 percent hard to achieve.

The Chinese government unveiled an unprecedented four-trillion-yuan (580-billion-dollar) stimulus package in November.

British Prime Minister Gordon Brown said Monday he believed China would agree on the need for new fiscal and monetary measures to tackle the global downturn at the April 2 Group of 20 summit in London.

The World Bank underscored that while China's economic growth outpaces that of most other countries, GDP growth at an annual rate of 6.5 percent "is significantly lower than potential growth."

According to the bank's latest "China Quarterly Update," the slowdown would probably lead to weaker investment, lower job growth, less migration and downward pressure on prices, among other results.

With global trade volumes falling sharply, China's export-driven economy would turn increasingly to its domestic market.

Still, China was likely to continue to outgrow most other countries, supported by solid macroeconomic fundamentals, stimulus policies, banks' willingness to lend, "fairly resilient" private consumption and accelerating government-influenced investment.

The World Bank noted that China’s "economic fundamentals are strong enough to look beyond 2009."

China’s robust economic fundamentals make "a strong case" for expansionary policies. But there may be a case for less emphasis on short term growth and more on longer term issues.

Dollar welcomed recent initiatives to stimulate consumption and government spending on health, education, and social protection measures but said there was room to do more.

Social instability from the economic slowdown was unlikely as long as the government provides a sturdy social safety net, according to the study.

"Somewhat lower growth is not likely to jeopardize China’s economy or social stability," said Louis Kuijs, the report’s main author and senior economist, "especially not if the adverse consequences of the downturn for employment and people’s livelihoods can be limited through the social safety net, preferably combined with education and training."

Kuijs suggested that China place less emphasis on targeting short-term GDP growth that would allow more scope to rebalance the economy, pursue reforms and improve the quality of growth.

World Bank cuts China's 2009 growth forecast, warns investment, job growth could weaken

EIJING (AP) — The World Bank cut its forecast of China's 2009 growth from 7.5 percent to 6.5 percent on Wednesday due to plunging exports but expressed confidence in Beijing's ability to keep the world's third-largest economy expanding amid global turmoil.

The drop in trade will hurt investment and job creation, the bank said in a quarterly report. But it said China still should grow faster than other major countries due to its huge stimulus package and strong banks, which were unhurt by the global crisis.

"China is hit very hard by an external shock," Louis Kuijs, the bank's senior China economist and the report's main author, said at a news conference. Kuijs said that also could push down prices, which can force companies to cut wages and investment.
Premier Wen Jiabao said last week China should meet its official 8 percent growth target despite a 25.7 percent drop in exports in February. Forecasts by private sector economists range from 8 percent to as low as 5 percent — the strongest of any major country but a sharp drop from 2007's stunning 13 percent expansion.




Wen said Beijing is ready to expand its 4 trillion yuan ($586 billion) stimulus if the downturn's impact downturn worsens, though he gave no details.

Beijing still has "plenty of space to implement forceful stimulus measures," with more spending and interest rate cuts, the World Bank report said.

"We see China as a relative bright spot in a rather gloomy global economic picture," said David Dollar, the bank's country director for China.

The stimulus is intended to reduce reliance on trade by pumping up domestic consumption through spending on building highways and other public works. But retail sales growth is weakening, suggesting Beijing has yet to spur a rebound in private sector spending. Kuijs said government outlays alone cannot fill the gap left by falling exports.

The World Bank says it estimates each percentage point less growth in China's non-agricultural gross domestic product growth means 5.4 million fewer jobs. There are no comprehensive data on China's employment or job losses but the government says the crisis has thrown some 20 million migrant laborers out of work.

Wednesday was the second time in four months the Washington-based World Bank has cut its China growth forecast for 2009, following a reduction in November from 9.2 percent to 7.5 percent. Growth at 6.5 percent would be the weakest since 1990's 3.8 percent and below the 7.6 percent reported in 1999.

"We don't foresee any significant recovery in China's growth until the world economy recovers," Kuijs said. Dollar said the global economy is expected to shrink by 1.5 percent this year, with no recovery until late in the year or in 2010.

"We should eventually see some recovery in exports later in the year, but on the whole the prospects remain pretty somber," Kuijs said.

Some economists say China must grow by a minimum of 8 percent annually to produce enough jobs for millions of new workers each year. The World Bank has said, however, that there is no specific growth rate required to keep employment stable.

Communist leaders worry that job losses could fuel unrest and are promising to spend to create employment. They are promising more spending on health, education and other social programs to reduce the financial burden on Chinese families and encourage them to divert money to spending on consumer goods.

Kuijs said that if Beijing decides it needs another stimulus, it might be more effective if it focuses on social programs, job creation and household consumption, instead of more construction. He said that also might save Beijing money.

"There are limits to how much money you can spend usefully on investment-oriented spending," he said. "It may make just as much sense not to go for the second or third general fiscal stimulus but to do more in these areas such as using the social safety net to deal with the negative consequences of this crisis on people's livelihood and unemployment."

Consumer prices fell in February, raising the risk of deflation, but Kuijs said that was not a serious threat yet and Chinese policymakers have tools to fight it.