Will Chinese GDP Surpass The US?

On the way to becoming a modern socialist country by 2035, and rich, powerful, and dominant by 2049, with the celebration of the one hundredth birthday of the People’s Republic, China aspires to claim proud rights as its GDP surpasses the United States, and project its power based on its expanding economic weight.

China’s economy may fail to overtake the US as it yields to the proverbial middle-income trap. This is where the relative development progress of countries in relation to richer nations stalls, and is normally characterized by difficult economic adjustment and often by unpredictable political consequences.

China’s growth spurt is now over, and the huge disparity in GDP growth has been eliminated. In the last few quarters, China’s GDP has been growing at half the rate of the US. Although that discrepancy is probably unsustainable, America’s $9tn GDP margin over China means that comparable rates of GDP growth in the future will sustain and even widen the margin.

China’s economic structure is unbalanced. It has income per head that is the equivalent of Mexico, but consumption per head that is no higher than Peru. Consumer spending accounts for about 37% of GDP, little higher than it was in 2010, and much lower than in 2000. Productivity growth, closely associated with liberalizing reform, has stalled.

China’s development model urgently needs a makeover to avoid the middle-income trap. The longer it is delayed, the bigger the costs. China’s leaders recognize that change is necessary, and Xi Jinping recently revived the slogan of “common prosperity” to mobilize the Communist party and citizens around a strategy to reduce income and regional inequality, and improve living standards.

Overtaking the United States is going to need a lot more than narrative. It requires policies to which Xi’s China is opposed, and might just remain a mirage. The consequences for China and the rest of the world have not been properly thought about.