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.