28 May 2019

Here’s How Fast China’s Economy

By Malcolm Scott and Cedric Sam

President Donald Trump says China won’t become the world’s top economic superpower under his watch because of the trade war he’s “very happy” with. Even without his tariff salvos, China was unlikely to take that mantle by early 2025—when a second Trump presidency would be due to end should he win reelection. But it was catching up fast, even if its growth moderates back closer to the 6 percent mark as seen by most economists.
China’s GDP will overtake the U.S. level in 2030 at these projected average growth rates:

Even on a purchasing-power parity basis that adjusts for price differences, the average person in China still has only about a third the spending power of an American. So even if China buys additional U.S. grains and natural gas—as had been expected before talks blew up this month—it will be tough to cut the trade deficit if American shoppers accelerate their own spending.

China’s exporting prowess has fueled massive trade surpluses and tensions with the U.S. Its competitive advantage in many products is now so entrenched for both local and foreign firms that even the trade war has failed to dent it. A recent survey from the European Chamber of Commerce in China found just 6% of companies polled have moved or are considering moving relevant production out of the country. Meantime, its swelling ranks of middle class consumers mean many companies can switch to targeting sales toward them as tariffs increase.

China has about the same proportion of city dwellers as the U.S. did in 1940

While President Trump’s boasts that China is hurting from the trade war are no doubt true, some of its biggest economic drivers over the past 40 years remain intact today. One such tailwind is the huge wealth and spending created as people move from the countryside to cities—a process that still has decades to run. That’ll fuel demand for jobs, apartments and services, beefing up the purchasing power of another 300 million to 400 million people.

President Trump says his tariffs are working to keep America No. 1; China’s state media says efforts to contain its advance are doomed to fail. While we’ll have to wait years to see which side is right, it’s clear today that the trade war has thrown a whole new variable into the question of if and when China takes over as the world’s biggest economy.

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