Tue, Nov 16, 2010 - Page 10 News List

China to be largest economy by 2020

PROBLEMS AHEAD:The Chinese economy remains ‘unbalanced’ and faces considerable risks, such as a widening of imbalances, asset bubbles, overcapacity and rising bad loans

Bloomberg

China will overtake the US to become the world’s largest economy by 2020, helped by faster expansion and an appreciation of its currency, according to Standard Chartered PLC.

“We believe that the world is in a ‘super-cycle’ of sustained high growth,” economists led by Gerard Lyons said in a report published yesterday. “The scale of change over the next 20 years will be enormous.”

China’s economy will be twice as large as the US’ by 2030 and -account for 24 percent of global output, up from 9 percent today, Lyons said in the 152-page Super-Cycle Report. India will surpass Japan to be the third-biggest economy in the next decade, according to the report. Goldman Sachs Group Inc estimates China will overtake the US by 2027.

The world may be experiencing its third “super-cycle,” which is defined as “a period of historically high global growth, lasting a generation or more, driven by increasing trade, high rates of investment, urbanization and technological innovation, characterized by the emergence of large, new economies, first seen in high catch-up growth rates across the emerging world,” Standard Chartered said.

Output in China, the largest maker of mobile phones, computers and vehicles, surpassed Japan for the second-straight quarter in the three months through September, Japan’s government said yesterday. The Chinese economy overtook the UK as the fourth--largest in 2005 and tipped Germany from third place in 2007.

China has expanded by an average 10.3 percent a year over the past decade compared with an average 1.8 percent for the US. Standard Chartered estimates growth will slow to an annual 8 percent pace by the middle of the decade, easing to 5 percent from 2027 to 2030.

The US economy, by contrast, still faces another year or two of “sluggish growth,” forecast at 1.9 percent for next year, before returning to its long-term trend rate of expansion of 2.5 percent in three to four years, Nicholas Kwan, Hong Kong-based regional head of Asia research at Standard Chartered, said in a telephone interview.

China’s comparatively faster expansion, together with an expected 25 percent appreciation of the yuan, should be enough for its nominal GDP to exceed that of the US by the end of the decade, Kwan said.

Still, the scenario faces risks on both the US and Chinese sides, Kwan said.

“For China, we have to consider to what extent the economy can keep growing without serious disruption, while the US is facing different challenges as a mature economy struggling to recover from an unprecedented crisis,” he said.

China could fall “abruptly off the fast track’’ as the former Soviet Union and Latin America did in the 1970s and Indonesia and Thailand experienced in the 1990s, Standard Chartered’s report said.

The economy is “unbalanced” and faces considerable risks, including a widening of imbalances, asset bubbles, overcapacity and rising bad loans, which could lead to a serious decline, the report says. A 10 percent decline in investment in China would make it very difficult to achieve any GDP growth at all, the report estimates.

Previous “super-cycles” of growth happened from 1870 to 1913 and after World War II until the early 1970s, Standard Chartered said yesterday. The current cycle began in 2000, it said.

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