China’s economy, once predicted to surpass that of the United States, is now facing lower growth expectations and increased uncertainty. The country has emerged from the COVID-19 lockdowns and strict measures of its “zero-covid” policy, but concerns about its long-term growth prospects remain. Factors such as a shrinking population, the end of the housing boom, a regulatory crackdown on tech companies, and geopolitical tensions have led analysts to revise their forecasts.
While some experts still believe that China’s economy could overtake America’s by 2029, others argue that China’s rise is already slowing down. Previous projections of China’s economic dominance have been scaled back. Goldman Sachs, for example, in 2011 expected China to overtake the US in 2026; now it predicts that China’s economy will not surpass America’s until 2035, and at its peak, it will be only 14% larger. Capital Economics goes further, suggesting that China’s economy will never become the largest, reaching 90% of America’s size by 2035 and then losing ground.
Source: The Economist
The downward revision of expectations for China’s economy is attributed to three main factors: population, productivity, and prices. China’s workforce has already peaked, and as the population ages, more resources will need to be allocated to caring for the elderly, leaving less for investment in new capacity. Returns on new investments are diminishing, and the productivity growth of Chinese workers is declining. The Xi administration’s control over local governments and private enterprises, along with restrictions on technology trade with the US, also contributes to the lowered growth expectations.
Forecasts for China’s economic future should be taken with caution, as they are sensitive to factors like currency exchange rates. If China’s labour productivity grows slower than expected or if America’s growth accelerates, China’s economy may never surpass America’s. And if China does become the largest economy, its lead is likely to be small compared to America’s current lead.
It is anticipated that China and America will remain near economic equals for decades. This scenario suggests that China will continue to be a significant geopolitical rival, and US policy will probably seek to contain China across a range of dimensions. If China’s peak is more gradual rather than rapid, its leaders may have less incentive to engage in confrontations before their decline sets in.
Overall, China’s economic growth prospects have become more uncertain, and the previous view of its imminent dominance over America’s economy has been tempered. The balance of power between the two countries is likely to remain closely contested for the foreseeable future.
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