Cooling the China Hype

'Chinaâ??s total GDP is around $6 trillion today. Assuming 10 percent GDP growth for the next 20 years, Chinaâ??s GDP would rise to $40 trillion. If the U.S. economy grew at say, 3 percent per year, total GDP would be $27 trillion. Back in 2007, before the financial crisis, the investment bank Goldman Sachs issued a report [PDF] that projected that Chinese GDP would be $26 trillion in 2030 compared to $23 trillion for the U.S. It bears noting that current Chinese purchasing power parity per capita is about $6,000 compared to $46,000 for Americans.

But it is unlikely that Chinaâ??s economy can sustain 10 percent economic growth for two more decades. Economic history suggests that once countries catch up with leading economies in terms of technologies and business management, growth slows down. In which case, Chinaâ??s growth might slow down to a mere 5 percent. Assuming sustained respective 5 percent and 3 percent growth rates for China and the U.S. for two decades, Chinaâ??s total GDP would reach $16 trillion, not $34 trillion. In 30 years, it would grow to $26 trillion, by which time U.S. GDP would be $36 trillion. In 40 years, Chinaâ??s GDP would $42 trillion and U.S. GDP would be $49 trillion. In 50 years, Chinaâ??s GDP would finally surpass that of the U.S. reaching $69 trillion compared to $66 trillion.

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