China’s Economy to Overtake America’s

China’s economic growth doesn’t necessary foreshadow the demise of American superpower.

Shanghai, China, July 2010
Shanghai, China, July 2010 (Andy Brandl)

The International Monetary Fund expects that China’s economy will overtake America’s as the world’s largest in terms of gross domestic product, adjusted for purchasing power, by 2016.

According to the Fund’s latest forecast, the Chinese economy will have expanded to some $19 trillion that year compared to just over $11 trillion today. America’s share of global output would drop to 17.7 percent compared to 18 percent for China.

Considering that China is roughly the same size as America but has four times as many people, millions of whom are still poor but many millions more who are extremely industrious, and given its increased openness to business and trade, analysts have expected the East Asian country to overtake America as the dominant economic force on the planet for more than a decade. But few predicted that it could happen so fast.

That is not to say that China doesn’t have formidable challenges ahead and reason to be anxious. Already, it is losing its cheap labor advantage to other countries in the region, including Indonesia and Vietnam, while neighbors as Malaysia and Thailand and Taiwan are investing dearly in information and biotechnology and other industries that China is hoping to develop.

Compared to the communist state, labor regulations and business laws in Southeast Asia are relatively flexible and welcoming of international investment.

Aside from this mounting regional competition, China’s demographic clock is ticking like no other nation’s in history. By the middle of this century, more than four hundred million Chinese will have retired — more than America’s total projected population by that time. That should help explain China’s “selfish” scramble for resources and footholds overseas.

At the same time, the end of American ascendancy is far from imminent. In terms of sheer military power, the United States will remain the world’s uncontested superpower for decades to come.

Although China is asserting itself more forcefully and emerging as the hegemon of the West Pacific, it can make no military nor moral claim to global leadership nor does it seem to have a desire to. It would rather prosper safe under the umbrella of American might than undermine it.

America’s economy is also far more innovative than China’s. Business laws may be burdensome at times while regulative uncertainty is certainly contributing to a lack of job creation today but overall, the freedom to create and run an enterprise is paramount and strongly protected. Contracts and (intellectual) property rights are solid and secure and no Western country has as flexible a labor market as the United States.

China, by contrast, is struggling with corruption and cronyism and a trade wall that is designed to keep foreigners out of certain industries and investments. Protectionism is on the rise in both countries but on the whole, America is freer and opener and therefore, much more stable than China.

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