A worker shovels dirt in front of a high-rise building construction site in Taiyuan in north China's Shanxi province last November. New analysis suggests China will become the world's largest economy much sooner than previously thought - likely around the year 2020.The Associated Press
Jock Finlayson is the executive vice-president, policy, for the Business Council of British Columbia
How long before a surging China eclipses a struggling United States as the largest national economy? The question takes on new significance as the world continues to recover from the 2008-09 financial crisis and economic downturn.
Prior to 2007, most prognosticators were confident the U.S. would remain number one in total economic clout until 2040 or later. Today, forecasters are hurriedly revising their projections in light of the global recession's divergent impacts on emerging and advanced economies. The result is that the U.S. is now on track to cede the top spot to China much sooner than anticipated as recently as three years ago - likely around the year 2020, according to some recent reports.
Not only did China, India, Brazil and a number of other key emerging market economies (EMEs) avoid falling into technical recessions in 2008-09, but they have come out the crisis with quite favourable fundamentals, particularly in the area of public finances. Based on work done by Eswsar Prasad of the Brookings Institution, emerging economies collectively will see their pubic sector debt loads decline as a share of aggregate gross domestic product, going from 30 per cent in 2007 to 26 per cent by 2015. Over the same period, the advanced economies are expected to suffer a rapid-fire run-up in accumulated government debt - from 48 per cent to 85 per cent of GDP. The contrast could hardly be starker, and points to a new and surprising source of competitive advantage for many developing countries in the years ahead.
Looking beyond 2015, a report from the economics group at Standard and Chartered Bank paints a dramatic picture of the changing global pecking order. The authors conclude that by 2030, the balance of global economic power will have shifted decisively, as the U.S., Canada, Europe, and Japan see their combined share of world output plunge from 70 per cent in 2000 to 30 per cent by 2030. In the latter year, China's economy is expected to be almost twice the size of America's, and India's about three quarters as large, measured using nominal GDP at market exchange rates.
Importantly, Standard and Chartered's projections assume that quickly growing emerging markets will experience rising exchange rates vis-à-vis the U.S. and other advanced economies. They also posit that China and India (among other EMEs) will continue to post strong economic growth going forward, while the major advanced countries limp along at 2 per cent or less per year. While not far-fetched, these assumptions are open to criticism and certainly won't be accepted by all analysts. Moreover, in terms of income per head, which is the best gauge of a nation's prosperity, most EMEs will continue to lag far behind the leading developed countries for many decades to come.
Still, even if one quarrels with some of the metrics and assumptions underpinning the Standard and Chartered study, the basic message doesn't really change very much. China, India, Brazil, and other EMEs are indisputably on the rise, while the mature developed countries strive to cope with aging (and in cases, like Japan, shrinking) populations, ballooning government debts, and lower potential growth rates. In only a few years' time, emerging markets are expected to account for half of global production and at least 45 per cent of international trade, proportions that will then increase further post-2020. We are on the cusp of a new world order, as economic, financial and ultimately political power inexorably bleeds away from the West and the North to the nations of the East and the South.