China may be on track to becoming the world’s largest economy, but it won’t last long

A quick back-of-an-envelope calculation suggests China could pass the US as early as 2030, but the US will overtake China again by the second half of the century, writes Hamish McRae

Ambitious young people from all over the world choose to study in the US, not China (Reuters)

China will pass the US in economic size in about 10 years’ time, maybe 15. But look towards the end of this century and the US will be number one again.

The first prediction comes from a number of economic studies, including the famous BRICs report by Goldman Sachs nearly 20 years ago. On some calculations, with exchange rates based on purchasing power parity rather than market exchange rates, China has already passed the US now.

These forecasts have received wide publicity, and have understandably helped provoke insecurity in the US and triumphalism in China. At least part of the current trade tensions between the two countries can be ascribed to this wider tussle for global economic supremacy.

The second prediction, that after a period of Chinese dominance the US economy will power forward and overtake China, has not received much publicity. But it seems to me to be just as valid, and actually more important.

The basis for this came from some calculations about population growth, and decline, from a group led by the University of Washington, in Seattle, and was published last week in The Lancet. The population projections are interesting because they suggest that the world tops out at a peak of around 9.7 billion in 2064 and will be down to 8.8bn by 2100. That is a lot lower than the projections by the United Nations, which last year was predicting a peak at around 11 billion in 2100. We don’t yet have the 2020 revision of the UN study.

I don’t think it is worth having an argument about which set of calculations is likely to be more right, though obviously lower numbers of human beings would put less of a burden on the planet. The UN has a mass of experience doing these statistics, and its mid-point estimates have been pretty accurate over the past 30 or so years. But these new calculations do take on board the collapse of fertility in China, which is dramatic, and need to be viewed seriously.

From a British perspective, there is an interesting outcome: the UK becomes the most populous country in Europe, passing Germany on the way down. From an Indian viewpoint, these numbers confirm that the country passes China to become and remain the most populous in the world for the foreseeable future. If you are looking at these numbers from Africa, the stand-out story is the rise of Nigeria to become the world’s second most populous country, ahead of China, with nearly 800 million people.

From a global perspective, however, the big story is the US/China tussle. The researchers add some estimates for GDP per head for the various nations, to give a global pecking order of the size of their economies. Allowing for this, China does pass the US in 2035, but the US then regains pole position in 2098.

Now, a health warning: these are the results of economic models. What you get out depends on the numbers you put in and the assumptions you make about a string of variables, including fertility, mortality, migration, productivity, labour participation rates, age of retirement and so on. Even if you get populations right, which you won’t, you can’t predict productivity or labour participation. But the idea that China does pass the US but the US then pulls ahead of China seems to me to be extremely plausible, indeed almost certain.

Indeed, a quick back-of-an-envelope calculation suggests that China passing the US may come as early as 2030; the US will re-pass China in the 2060s. So China’s position as number one will last only about 30 years, not the 60 years the Washington University numbers suggest.

There are two reasons for this. One is that immigration to the US is likely to be higher than projected. It will remain the destination of choice for most would-be migrants, particularly the best-educated ones, including many from mainland China and from India. China, by contrast, will not be an attractive location for migrants, so will have to rely on the talent pool it generates. That pool is huge, and will be increasingly well-educated. It is worth noting that Shanghai young people score very highly on the OECD’s PISA measure of school pupil attainment. Chinese people in Singapore have catapulted the city state to a per capita GDP close to that of the US. But the harsh fact remains. Ambitious young people from all over the world choose to study in the US. They do not choose to study in mainland China.

The second is that GDP per head is likely to remain much higher in the US than in China. The gap in those projections seems to be that the US output per head will be roughly double that of China, but only double. Surely the gap will be greater than that, particularly given the access of the US to the global pool of human capital.

There are warnings here for the US. It has to remain an open, attractive society. That means dealing with social and racial problems, as well as environmental and educational ones. But the long-term outlook is a much more positive one, and that needs to be said too.