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July 08, 2008

Carnegie Endowment makes conservative prediction of China overtaking the US Economy in 2035


Here is 16 page briefing from the Carnegie Endowment by Albert Kiedel on the economic rise of China

UPDATE: The British Telegraph has an interesting series of articles on life in China now

The very conservative projection described in the table above already underestimates China's economy. It has China at $4 trillion on an exchange rate basis in 2010.
This site estimates that China is at that level in late 2008 (and already if Hong Kong and Macau are included which they should as part of China since 1997 and 1998).

As of July, 2008 :
China's currency is now 6.85 yuan to 1 USD. China's GDP is now $3.85 trillion. Including Hong Kong and Macau China has $4.2 trillion GDP.


Year GDP(yuan) GDP growth Yuan per USD China GDP China+HK/Ma US GDP
2007 24.66 11.9% 7.3 3.38 3.7 13.8
Jul08 26.3 6.85 3.83 4.2 Past Germany
Oct08 26.7 6.65 4.0 4.45
2008 27.3 10.2% 6.35 4.3 4.8 14.0
2009 30.1 9.8% 5.62 5.4 5.9 14.2 Pass Japan
2010 33.7 9.5% 5.11 6.6 7.1 14.6
2011 37.0 9.5% 4.64 8.0 8.5 15.0
2012 40.6 9.5% 4.26 9.5 10.0 15.4
2013 44.2 9.0% 3.91 11.3 11.8 15.9
2014 48.2 9.0% 3.72 13.0 13.5 16.4
2015 52.0 8.0% 3.54 14.7 15.2 16.9
2016 56.2 8.0% 3.53 16.7 17.2 17.4 Passing USA
2017 60.4 7.5% 3.38 18.8 19.4 17.9 Past USA
2018 64.2 7.0% 3.20 20.9 21.5 18.4
2019 69.2 7.0% 3.09 23.0 23.6 19.0
2020 74.0 7.0% 3.0 25.2 25.8 19.6
2021 78.4 6.0% 2.9 27.2 27.8 20.2
2022 83.1 6.0% 2.9 29.4 30.0 20.8
2023 87.3 5.0% 2.8 31.5 32.2 21.4
2024 91.7 5.0% 2.8 33.7 34.4 22.0
2025 96.3 5.0% 2.7 36.1 36.8 22.7
2026 101.1 5.0% 2.6 38.7 39.4 23.4
2027 106.1 5.0% 2.6 41.4 42.1 24.1
2028 111.4 5.0% 2.5 44.4 45.1 24.8
2029 117.0 5.0% 2.5 47.5 48.2 25.5
2030 122.8 5.0% 2.4 50.9 51.6 26.3 Close to double USA



China's inflation and internal pressures are causing Chinese leaders to increase the value of the yuan over the mid and long term

China is engineering a pause in the yuan appreciation to curb speculators who are profiting on the rise of the yuan

Since last October interest rate differentials between dollars and yuan have reversed. The U.S. Federal Reserve aggressively lowered rates just as the Chinese central bank, the People's Bank of China, was pushing up domestic rates to fight inflation. Currently, rates on the Chinese central bank's one-year bills are about 170 basis points higher than comparable U.S. Treasuries.

This has created an arbitrage opportunity that local firms are exploiting on a massive scale, borrowing cheap dollars to substitute for more expensive borrowings in yuan and for local investments. A second factor driving this arbitrage is the wide-spread expectation that the government will either speed up the rise in the yuan's crawling peg or implement a one-off revaluation.


Li Jin (Harvard) and Shan Li (former CEO of Bank of China International) suggested in the Wall Street Journal that China slow currency appreciation and invest funds in the US to help deal with China's inflation and stabilize the US economy

FURTHER READING
Previous economic update on China

Highlights of the Carnegie Endowment economic rise of China

Other Keidel analysis of China

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