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TWENTY YEARS ago China’s economy was only 14% as big as America’s (at market exchange rates). But it was not too soon for bold economists to begin speculating about when China’s GDP might eclipse America’s to become the largest in the world. In an influential paper published in 2003, Goldman Sachs, a bank, predicted that the decisive year would be 2041. By the time of the global financial crisis in 2007-09, that forecast looked timid. The gap between China and America had narrowed much faster than expected, because of America’s wobbles, China’s resilient growth and the steady appreciation of the yuan. By 2010, China’s GDP was 40% the size of America’s. Goldman Sachs brought the date of the eclipse forward from the early 2040s to the late 2020s. This newspaper was even less cautious. That year it created an interactive chart, which allowed readers to make their own predictions of when China would overtake America, based on readers’ assumptions for growth, inflation and the exchange rate. Our “default” assumptions implied that China’s moment of economic triumph could arrive as early as 2019.
Five years later, this bullishness seemed silly—not because China’s growth disappointed our expectations, but because its exchange rate, adjusted for inflation, abruptly stopped strengthening. China clumsily devalued the yuan in 2015, spooking investors who feared further declines in the currency. The country’s date of arrival as the world’s largest economy receded into the distance. By the end of an eventful 2015, EIU, our sister company, forecast that China would not overtake America until 2032, eight years later than it had forecast 12 months earlier.
These postponements of China’s date with economic destiny have cast some doubt on whether it will ever happen. The country’s productivity growth has slowed and its demographics have turned. China’s workforce is already shrinking, a decline that will probably accelerate in future decades. The UN projects that China’s population aged 15-64 will decline by more than 100m in the 2030s. If China’s GDP does not overtake America’s by the middle of that decade, it may never do so, according to Capital Economics, a research firm.
That prediction may be too gloomy. Other forecasting outfits, including the OECD, the Lowy Institute, and the Centre for Economics and Business Research, project that China’s GDP will overtake America’s at some point in the 2030s. EIU, for example, now thinks it will happen in 2039. That prediction is strikingly close to Goldman Sachs’s original date, set 20 years ago.
China’s economy has had its ups and downs over the past two decades. As a result, expectations of its fate have come full circle. Sometimes the future is easier to see from a distance.
